06.DIY risks
The number of self-managed super funds (SMSFs), or ‘DIY’ funds, almost quadrupled in the last 12 years; 25% of superannuation is now in SMSFs.
To make a DIY fund work, you generally need:
- At least $200,000 to $250,000
- Some investment expertise
- The time and interest to run a super fund
- An understanding of trustee responsibilities and the rules
However, 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.