Tools of the trade

The superannuation industry will tell you expert advice is needed to run a self-managed superannuation fund (SMSF).

The superannuation industry will tell you expert advice is needed to run a self-managed superannuation fund (SMSF).

The reality is, those willing to put in the time and effort can do quite a bit of the administration and compliance of the SMSF themselves, should they choose to.

Many of those with an SMSF - or thinking of starting one - are well-informed, self-motivated people capable of getting on top of the requirements.

And they take exception to being lectured to by industry players who say it is too hard for them to do on their own and that they lack the necessary skills to fulfil the role properly.

But even allowing for the self-interest of those who make their living helping people set up and manage their SMSFs, there is plenty of potential for mistakes that can have costly consequences. So it does need to be undertaken with some caution.

Most SMSF trustees are running their own funds for all the right reasons, rather than just because their mates have their own funds. And some may feel they cannot possibly do worse than the large superannuation funds that have given them very ordinary returns and service in the past few years.

But in the main, DIY super funds are popular because self-directed investors like the control it offers them and the benefits that go along with that.

For funds with large balances, there is also the opportunity for cost savings, which shouldn't be sneezed at.

That's because there will usually be no fund managers' fees involved, as DIY fund trustees prefer direct investments, such as Australian shares, cash and fixed-interest.

Much of the cost of administration in a DIY super fund is fixed, no matter what the size of the fund (although if expressed as a percentage, they can be expensive for small account balances of, say, less than $200,000).

There has been tremendous growth in SMSFs in recent years, with many providers pitching for the business of DIY trustees.

For those who really want to reduce the costs as much as possible and do not want advice, there are now "cut-price" fund administrators.

They will provide the documentation and its lodgement, where required, for SMSF accounts, audits and tax returns.

Some even allow the documents to be completed online.

Though the documents will usually come with a guide showing how they should be completed, there is no advice.

However, it is important to remember that fund trustees are legally liable for everything to do with their fund, even when the trustees hire advisers such as accountants, financial planners or SMSF administrators.

And what of the role of accountants?

Small business owners (who can usually put their business property into their DIY fund) and higher-earning professionals are the natural constituencies of SMSFs.

Many of these people will have an accountant advising them on their tax affairs anyway, and most small business owners are likely to have their fund administered by their accountant.

But accountants are not allowed to provide even "strategic" financial advice, such as how an SMSF should be invested, unless they are are licensed to give financial advice.

Accountants cannot, for example, advise on whether or not their client should move the money they have with a large superannuation fund into their DIY fund.

This is despite it being the sort of question many clients would expect their accountants to be able to answer.

It is a trickier question than it seems.

It may be better to keep the existing account going to maintain the cheap life insurance that is generally provided by large super funds.

Accountancy bodies are in discussions with the government to amend the regulations so that they are able to give "strategic" financial advice to their clients, where no product advice is given.

That would allow accountants to give advice on rollovers and investment strategy, for example.

Let's hope common sense prevails, as accountants are well-placed to provide strategic advice to SMSF trustees.

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