The top 5 things you need to know about an SMSF

In this column  I will be writing about all things self-managed super funds or SMSFs. Hopefully                 those of you thinking of investing in an SMSF and those who already have one and don’t really                  understand them, will find the information useful.

In my bio ,which introduced me last week, I outlined that it is all about:

• What don’t you know?
• What would you like to know?
• What should you know?

I think a great place to start is about learning a few of the basics about SMSFs so I’ll talk about the top five things you should know about an SMSF

1. What is an SMSF and your role in an SMSF?
2. Control
3. With control comes responsibility
4. Get educated
5. Great advisors

What is an SMSF and your role in an SMSF? 

An SMSF is almost identical to any other type of superannuation like an industry or retail fund. You contribute into the SMSF and you can take it out when you retire or meet some other suitable condition of release.  So the money has to stay in there until that time.  It is a trust account in that the money is kept in trust until you retire.

One of the differences between an industry or retail fund and an SMSF is that, instead of having many thousands of members,  an SMSF can only have a maximum of four members. The largest majority of SMSF’s comprise couples and are usually referred to as Mum and Dad funds.

If you have an SMSF you will have two roles; as trustee of the trust account and as a member.  As a member you will be contributing to your SMSF usually through employer contributions, salary sacrificing and/or personal contributions.  You will also reap the rewards when you retire. As a trustee you are responsible for the management of the SMSF and ensuring that the SMSF is adhering to all the legislative requirements and deciding what the SMSF should invest in, taking into account your risk appetite.  Your role as a member and a trustee means you wear two different hats with different and separate responsibilities.  At times it is almost like you have to talk to yourself.

Control

There are a lot of SMSF’s in operation, well over 500,000 in fact and they grow by about 30,000 funds a year.  They became increasingly popular after the global financial crisis when people saw their superannuation balances diminish considerably.  People thought they could achieve better results if they did it themselves and so they set up a SMSF.   That is one of the great things about investing in a SMSF; being in control and able to decide what is happening with your money.

 With control comes responsibility 

So you have the all important control but guess what?  You also have the responsibility.  I have a mantra in my book “Holy Crap! Where’s my Super Gone?! Self-managed Super Made Simple” which is:  “You are trustee of your super fund.  Not your accountant.  Not your financial planner.  Isn’t that the best reason to take control?  Just remember, with control comes responsibility.”

You are ultimately responsible for what happens to and in your self-managed super fund.  If something goes wrong you are responsible.  Not your accountant or financial advisors.  Scary but true.

Get Educated

The single most important way to have control and take on that true responsibility is to get educated.  Build your knowledge so you know the basics and then keep building on that foundation.  It’s very empowering.

I can understand why most people bury their heads in the sand about superannuation mainly because of the complicated terms, the seemingly endless rules and the changes that the government keeps making as to what you can and can’t do with your superannuation.

It doesn’t have to be like that and so don’t be afraid of not knowing.  There is so much great information out there including the Australian Taxation Office and Australian Securities and Investments Commission websites.  They provide easy to understand guides that will help you obtain that knowledge.  There is also my book “Holy Crap! Where’s My Super Gone?! Self-Managed Super Made Simple ”

With knowledge comes confidence.  Confidence not only to control your super fund, but also your life and ultimately your retirement.

Great advisors

Control and responsibility is not about you doing it on your own and I’m certainly not advocating that you do that.  It is important though that you have the confidence to proactively manage your SMSF.  It’s about you being the manager not the one being managed.  Manager should definitely be your title.

You will need professional help with managing  and this will mean getting great advice.  Financial planners  give you advice on what is the best investment opportunities for your SMSF and take into account a myriad of factors.  If you are receiving financial advice, it is essential that your advisor is licensed (Australian Financial Services licence). There are also accountants who prepare your financial information and who also may provide you with advice and if they are providing advice they also have to be licensed.

Your financial information also has to be audited annually and the majority go with the auditor that their accountant recommends.  Auditors I think should be another trusted advisor in relation to compliance as they are like a representative of the Australian Tax Office. You get to choose your advisors and that includes your auditor so why not have them as part of your group of trusted advisors. That’s part of having control. I also suggest that you see your auditor throughout the year so that you can ensure there will be no big surprises at the end of the year.  Big surprises may end up costing you a lot of money.

Coupled with having great advisors is the importance of having the basic knowledge. If you have the basic knowledge then you will have a better idea about whether you are getting great advice.  Basic knowledge will allow you to ask the questions and keep asking the questions till you get the right answers so you are have the confidence of being in control of the decisions for your SMSF.

Well I think that is enough information for this week. If there are any questions you would like answered in relation to SMSFs please e-mail me at audrey@superconfidence.com.au  and I can include these in my column.  I’m sure any questions that you have will be questions that many others have too.

Audrey Dawson is Director of Super Confidence and author of “Holy Crap! Where’s My Super Gone?! Self-Managed Super Made Simple.”

Super Confidence provides educational, compliance advice and audit services to the SMSF industry.  For more information visit www.superconfidence.com.au