One of the benefits of setting up an SMSF is controlling your investments. While this sounds enticing, the downside is that they involve a lot more time and effort. They are also often the targets of fraud and scams.
Firstly, SMSFs require a lot of ongoing investment of time:
- Aside from the initial setup, members need to continually research potential investments.
- It is important to create and follow an investment strategy that will help manage the SMSF. The investment strategy will require regular updates depending on the performance of the SMSF.
- The accounting, record keeping and arranging of audits throughout the year.
- Data shows that SMSF trustees spend an average of 4-8 hours per month managing their SMSFs. The time commitment adds up to more than 100 hours per year and demonstrates that compared to other superannuation methods, it is a lot more time occupied.
Secondly, there are set-up and maintenance costs of SMSFs. Costs such as tax advice, financial advice, legal advice and hiring an accredited auditor. These costs are difficult to avoid if you want the best out of your SMSF. A statistical review has shown that, on average, the operating cost of an SMSF can be $6,152. This data includes deductible and non-deductible expenses such as auditor fees, management and administration expenses etc., but is not inclusive of costs such as investment and insurance expenses.
Thirdly, investing in an SMSF requires financial and legal knowledge and skill. Trustees should understand the investment market to build and manage a diversified portfolio.
Investment Strategy
Further, when creating an investment strategy, it is important to assess the risk and plan for retirement. Preparation can be difficult if you don’t have experience/knowledge in this field. In terms of legal expertise, complying with tax, super, and other relevant regulations requires a basic level of understanding at the very least.
Finally, insurance for fund members can be difficult without additional knowledge.
Although SMSFs have the advantage of autonomy when investing, this comes at a price. Members/trustees need to invest time and money into managing the fund and, on top of this, are required to have some financial and legal knowledge to manage the fund successfully.
SMSF Fraud Alert
The ATO is also warning of an increase in Self Managed Super Fund identity fraud and scams targeting the retirement savings of individuals. If looking to start an SMSF and maintain it, this is something to be aware of.
These fraudulent perpetrators use stolen identity information or may harvest information from individuals by cold calling the victim and presenting themselves as superannuation experts.
They typically offer superannuation comparisons and/or high-return investment options by establishing a fraudulent SMSF. Remain vigilant, and remember that if you are dealing with an advisor for the benefit of your SMSF, you should check to see if the advisor is listed on ASIC’s Professional registers or Moneysmart’s list of unlicensed companies you should not deal with.
