When is it a viable option to open your own SMSF?

The viability of self-managed superannuation funds has changed, so when does it make sense to have one?

While starting your own self-managed superannuation fund (SMSF) has been a hot topic for over a decade now, the ATO has recently reported that the median balance of assets in an SMSF is $602,629, meaning that if your balances are looking as healthy it might be good to reconsider opening one. 

In my time as a Financial Planner, I am observing that the age of clients seeking to open their own SMSF is becoming lower. Of all the new SMSF’s established in the last quarter, 29.8% had members between the age of 35 to 44 and 32.5% had members between the ages of 45 to 54.

The ATO has reported that the median balance of assets in an SMSF is $602,629 .

ASIC has been very clear that they believe establishing a SMSF with a balance below $200,000 is not in the members or clients’ best interests.

A couple in their early 40’s with a combined balance of $600,000 who wish to establish a SMSF and pursue a high growth investment portfolio are likely to pay $2,500 for accounting and audit fees plus additional investment management costs (say 0.73%) totalling approximately $6,880. If this same money was invested in an industry superannuation fund high growth option the fees would be approximately $4,458 for administration and investment costs. If the couple take on all management responsibility of the SMSF and do not outsource the portfolio management to a professional, then the SMSF may be cheaper to operate not factoring the time and risk of managing all of your own money.

If you are considering establishing your own SMSF to invest your superannuation monies in an identical investment strategy as your industry or retail fund, it really does not make sense to open a self-managed superannuation fund.

So, when is it a viable option to open your own SMSF? My answer to clients is when the SMSF option provides investment choices and strategic options that normal industry or retail funds cannot provide.

For example:

- Using your superannuation to borrow money and purchase an investment property.

- Using your superannuation fund to facilitate a member loan or limited recourse borrowing arrangement.

- Using your superannuation to purchase business real property which a company you own or operate will lease the premises for the purpose of conducting business.

- Where you can demonstrate that the ongoing administration and investment management fees of a SMSF are less than an industry or retail super fund.

- To purchase shares in a private company (there are very strict rules on how this can take place).

An SMSF may be a great structure to help facilitate the growth of your superannuation balance. It is important that you are confident that the time and cost of establishing and maintaining a SMSF can provide clear benefits that cannot be achieved from using an industry or retail superannuation fund.

Andrew Zbik, senior financial planner, Omniwealth

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