01.Do it yourself or not?
If your accountant or financial planner recommends setting up a Self-Managed Super Fund (SMSF) make sure it really will give you the best deal before you jump.
The number of self-managed super funds, or ‘DIY’ funds, almost quadrupled in the last twelve years. By June 2007 nearly 360,000 funds with almost 690,000 members held over 25% of total super assets.
However, some accountants and financial planners may be advising people to open an SMSF when this isn’t necessarily the best option for them. For example, we found material recommending people with as little as $40,000 to invest open their own fund, which clearly wouldn’t be cost-effective. And statistics from the Minister for Superannuation and the Australian Taxation Office (ATO) throw doubt over whether SMSFs are the best option for many people:
Too expensive DIY funds, particularly those with small balances, can be very expensive to run. High costs detract from investment returns. The ATO found that the proportion of operating expenses for SMSFs with balances under $50,000 is 10.5% of assets. In comparison, low-cost (non-SMSF) funds charge as little as 0.75% each year, while offering professionally managed investments along with the ability for you to control your own money — for example, through share trading. SMSFs with balances between $50,000 and $200,000 cost 2.63% to 3.55%, and SMSFs worth more than $200,000 had average costs of around 2.3%.
Not enough money 30% of SMSFs have less than $200,000, which is generally the recommended minimum. However, the average balance per member is over $400,000, so plenty of wealthy people have DIY funds too
Don’t know the rules An ATO survey found that 21% of SMSF trustees had ‘low’ or ‘low to medium’ knowledge of their legal obligations. 15% didn’t have an investment strategy, and 25% were unaware of the restrictions on the type of assets that could be bought from ‘related parties’ such as friends or business associates.
Please note: this information was current as of May 2008 but is still a useful guide to today's market. For more recent information, see our article on Future-proof your super 2012.
DIY super swindlers
Unscrupulous advisers have opened self-managed funds for consumers, giving them illegal access to their super. In some cases consumers were swindled out of some or all their money. In others they were charged up to 20% as a fee. In addition to the risk of losing their super, consumers are faced with large taxation penalties.
If you’re under 55 you can only gain access to your super money in exceptional circumstances, for example, if you’re suffering severe financial hardship or you’re permanently disabled. For information go to www.apra.gov.au or call 1300 131 060.