Industry Super Australia (ISA) has put out a statement on self-managed super funds (SMSFs), claiming that SMSFs generally work best for people with at least half a million dollars in their super.
In an update on its website, ISA advised superannuants that SMSFs contain “hidden traps” and investors should ensure they have two hours per week to manage a fund before starting one.
Members should ideally also have “a very keen interest and strong knowledge of the stock market and investments” if they are to start an SMSF, according to ISA.
Trustees should ask themselves: "Do I have the expertise with shares, trusts and other investment products to make better decisions than the professionals employed by industry super funds?" he said.
Members should ask themselves "What will I give up to put aside the two hours or so per week required to manage an SMSF?” and assess whether the fees that will be charged by accountants, financial planners and auditors outweigh additional gains, ISA stated.
ISA also suggests potential trustees should be able to ensure they will have the capacity to stay abreast of the frequent changes to SMSF rules and regulations made by the Australian Taxation Office, and points out they will need to purchase additional insurance to replace the cover they may have in their existing fund.
ISA also cautioned that SMSFs are less protected than other super funds in the event of theft and fraud, saying “many SMSF investors [have lost] their life savings when they have been the victim of fraudulent activity.
“While an SMSF might give you more control, it comes at a significant cost in time and money that you wouldn’t ordinarily pay, especially if you were with an industry super fund," ISA stated.
“You also have to deal with more red tape. There are strict Australian Taxation Office rules about setting up and managing your own super fund. And even if you receive incorrect advice from a professional, the ultimate responsibility for the fund still rests with you.”
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