Three common myths about Self Managed Super Funds
Superannuation | 16/04/2019 |
5 min read
Self managed super funds (SMSFs) saw a rapid growth in popularity over the previous decade. But the latest industry reports show the tide has turned, and while there are nearly 600,000 self-managed super funds (SMSFs) in Australia, handling approximately $726 billion worth of assets, people are returning to traditional super funds.
This has been driven by global economic uncertainty and the acknowledgment that SMSFs require a significant investment of time and resources to properly administer.
With that in mind we’ve looked at the most common myths about managing your own super, and how the reality stacks up.
1. SMSFs offer more variety than a regular super fund
Many people assume that a SMSF opens up new investment opportunities. While that’s true to some extent, there are strict rules around things like investment properties. Combine that with a flat property market, not to mention the various administrative costs, and the benefits can quickly evaporate.
A laissez-faire approach to planning your SMSF policies can also land you in serious trouble. One in three SMSF managers didn't know it's a legal requirement to have a formal fund investment strategy, according to the Australian Securities and Investments Commission (ASIC).
The lack of diversification in SMSFs is also troubling. A 2018 report from Vanguard shows that 84% of respondents didn’t understand what a properly diversified portfolio meant. “SMSFs seem to be bearing significant risk, largely relying on continued success of the Australian share market, which represents just 3 per cent of the global investable equity market".
The reality is many super funds offer a diverse mix of investment options that is quite similar to the typical SMSF. Equip allows members to choose from six diversified investment options or choose from sector specific options such as property, overseas shares, local shares, environmentally sustainable investments and more.
2. SMSFs mean avoiding administration fees
Taking control of your superannuation doesn't automatically mean lower fees - it just transfers costs to the person in charge of the fund. More than 30 per cent of respondents to ASIC's 2018 SMSF review said managing their own fund was more expensive than they thought it would be. This is because fund managers need to budget for ongoing expenses such as tax, accounting and legal advice - not to mention regular SMSF auditing.
Industry funds such as Equip have the benefit of spreading their costs amongst multiple members. This allows us to keep individual costs down. And because we’re a profit-for-member fund, there are no external shareholders to pay. Which means any profits earned go back to the members, and our costs are kept down.
3. SMSFs are a DIY option suitable for anyone
One of the biggest self-managed superannuation myths is that the structure affords individuals complete freedom to manage their own affairs, regardless of financial experience. While you can do a lot of administration yourself, having a team of advisors and investment partners onboard can be a more effective way to maximise your super value.
SMSFs are also not a suitable option for everyone - the investment structure can be complex to someone with no insider experience and can result in a fund that is more labour-intensive than beneficial. According to ASIC data, 38% of Australians with SMSFs spend more time than expected managing their finances. Which is one of the hidden pitfalls of DIY superannuation.
And if you don't have a clear understanding of asset classes, the Australian economy, and general risk / reward metrics for an SMSF, you are probably going to need a lot of help from third parties. Which means additional ongoing fees and costs. Which means you’re spending more money and time managing something that your super fund provides automatically.
Get the balance right with an Industry Super Fund
Self Managed Super Funds have their benefits. But they’re not for everyone. To get the most out of them you need to fulfill three basic criteria:
- A large fund balance
- Financial and investment experience
- Time to manage and administer the paperwork
Equip can help you tailor a super fund or retirement structure that offers competitive returns and low fees without the paper work and time required to do it yourself. Speak to one of our financial planners to learn more about your options, and how we can help.
Equipsuper Pty Ltd (“Equip”) (ABN 64 006 964 049, AFSL 246383) is the Trustee of the Equipsuper Superannuation Fund (“the Fund”) (ABN 33 813 823 017, MySuper Authorisation 33813823017672). This document provides general information only. It does not take into account your personal objectives, financial situation or needs, so should not be taken as personal advice. Before making a decision to invest in the Fund, you should read the appropriate Equip Product Disclosure Statement (PDS). Past performance is not an indication of future performance. Equip is licensed to provide intrafund personal and general superannuation advice under its AFSL. Member Advisors are employees of Equip. For more information about the remuneration of Equip and its employees, please refer to the Equipsuper Financial Services Guide (FSG).