The main disadvantages of an SMSF over a retail superannuation fund are:
Costs associated with SMSFs
Subject to a case specific analysis, an SMSF may be more expensive than retail funds if the fund holds minimal assets. The ATO suggest you would need around $200,000 but we feel this is not an accurate assessment.
Accounting fees are generally paid to the accountant or administrator engaged to manage this function for the trustee. The audit fee should be a separate fee paid to an independent auditor. A service provider, or fund manager may charge a management or administration fee. Financial planning fees may be payable to a financial planner. On top of these fees, costs associated with the investments such as asset valuation and transaction costs need to be taken into account.
In total, these could outweigh the costs associated with a retail fund.
CA Financial Services can determine if there will be any costs savings for you. Although cost is a major consideration the long term benefits of the superannuation system may outweigh the initial costs. An example of this is a business that places their business property into superannuation utilises the capital gains tax exemption when converting the super into a pension. Contact CA
Legal and compliance obligations
SMSF trustees or trustee directors are personally liable for any actions of the fund and are bound by law to responsibly manage the fund for its members. This means, either the trustee should keep up-to-date with the relevant legislation, or the trustee finds an expert SMSF adviser who possesses detailed superannuation knowledge.
The risk of non-compliance with the superannuation, corporations, trust and taxation laws may be increased due to lack of specialist knowledge. A breach could result in severe monetary penalties or even imprisonment.
For example, a breach of the sole purpose test could attract a $220,000 fine and deem the fund non-complying, with associated tax penalties. The severity of the SIS Act civil penalty provisions could deter some prospective SMSF trustees.
There are also significant administrative and compliance tasks that must be fulfilled by SMSF trustees. A trustee will often need to set aside time for the on-going management of the fund. This could involve substantial time and effort and may not suit some lifestyles.
Although trustees have some control over their level of involvement with an SMSF (e.g., administrative tasks could be outsourced), it is prudent that all operational and investment decisions and advice is carefully reviewed by all SMSF trustees. In other words, the trustees and their advisers should keep up-to-date with the relevant laws to ensure all requirements are met.
Note: SMSFs do not have access to the Superannuation Complaints Tribunal, nor are they eligible for the grant of financial assistance that may be provided for funds that have suffered loss as a result of fraud.
CA Financial Services ensures your fund and our knowledge is kept up to date and compliant. Contact CA
Expertise and performance
A professional fund manager with considerable investment expertise and resources should be able to outperform an amateur investor over a medium to long-term, even one with relatively sophisticated market knowledge.
Accordingly, there is the danger that trustees will not give due consideration to diversification (and other investment principles) and therefore the medium to long-term returns of a fund may be lower than those achieved by a retail fund.
In formulating an investment strategy, trustees must consider all of the fund members and the dates at which they will retire, and then structure the portfolio to ensure there will be sufficient liquidity to pay the retirement benefits when they are anticipated to fall due. Contact CA
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