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Self Managed Super Funds. We know the ins and outs

SMSF’s, DIY Funds and Family Super Funds are the same thing. They are ways of describing the alternative to managing superannuation via the traditional methods of Retail (AMP, AXA, and MLC) and Industry (CBUS, Statewide and Hesta) funds.

SMSF’s have been the fastest growing sector of the Australian superannuation industry for well over five years. SMSF’s are the largest sector of the industry with 99% of the number of funds and over 31% of the $1,300,000,000,000.00 (that’s trillion) in total super assets.

It is estimated that 80% of SMSF funds are held in cash and, perhaps, the rise of SMSF’s coincides with ability of SMSF’s (since September 2007) to borrow in order to acquire certain asset classes such as property.

Thanks to Grant Abbott for permission to use this video.

There are three important reasons why SMSF’s have grown so rapidly; control, flexibility and cost.

Control is the key reason why people elect to establish their own fund. Some examples of control are choice of Investments, control over how death benefits are dealt with, control over retirement benefits and control over insurance proceeds.

Members are directly responsible for the fund and are required to make all of the decisions in relation to their fund.
This does not mean that members are unable to seek out professional expertise to assist with making decisions. In most cases a suitably qualified financial adviser with specialist education in SMSF’s is engaged to assist with a variety of tasks from advising on whether it is appropriate to establish a fund, to implementing and reviewing investment strategies and assisting trustees to pay death benefits following the death of a member.

What SMSF’s do is determined by the Trust Deed and with legislation changing continually and rulings being determined constantly a Deed is almost out of date by the time it is executed.
A compulsory component of the trustee responsibilities is establishing and strictly adhering to an Investment Strategy. An investment strategy is the written plan for making, holding and realising fund assets consistent with the investment objectives of the fund. Both the Trust Deed and the Investment Strategy ought to be regularly reviewed by a qualified professional.

In the next 5 years the key growth in SMSF numbers will be driven by Gen X’ers. Typically aged between 30 and 48 this generation are more cynical than their parents and are prepared to conduct research and vetting on their own. They want to be more involved in the decision-making process of their investments and have the ability to manage the requirements of a trustee. They also have sufficient time on their hands to take advantage of the Limited Recourse Borrowing rules and gear up their SMSF to purchase property as they trust bricks and mortar over the stock market.

Many of my clients express a lack of association with their super. I can relate to that. Prior to establishing my fund (I intend to purchase my office in the fund and pay my SMSF rent) I would be lucky to review my statement once a year. Not any more though and I hope to have a better balance as a consequence.

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