Do you really need $1m to start a SMSF?
Unless you’re a millionaire, is a SMSF worth it for you? There has been a lot of talk in the media recently, driven largely by the uncovering’s of the Royal Commission as well as the Productivity Commission findings, surrounding the appropriateness of Self-Managed Funds.
Do you need $1m in super to have an SMSF? If you believe the Productivity Commission recommendations, then yes. But that would also have you believe that the data they used as part of their findings is consistent across sectors. SMSF data, provided by the ATO, included items such as contributions tax and insurance in its net earnings figures, while APRA data did not. If there is to be an accurate comparison across the superannuation sector, then consistent data must be used before providing statements as controversial as this. A minimum account balance of $1,000,000 would also mean that far more superannuation wealth will be held by retail and industry funds, whose performances in acting in the interests of their members have globally been challenged via the findings throughout the ongoing Royal Commission into the sector.
So why would someone start a fund with a lower balance? We note ASIC’s long held stance that an SMSF should have a minimum balance of at least $200,000 and would agree that, from a cost perspective, the costs to obtain advice, implement an establishment, and maintain the fund on an ongoing basis, would be higher under circumstances where a lower balance exists. However, costs are not the only factor at play with our clients. Many clients may have a contribution plan in place, or they may aspire to acquire direct property via their superannuation. They may want to undertake a Limited Recourse Borrowing or hold a commercial property to lease to their business. Many clients like the control that an SMSF provides them over their retirement wealth, and the additional asset types and classes that they can invest in. These factors are important to consider, rather than placing a roadblock in front of individuals aspiring to grow their wealth. As advisers, we must always act in our client’s best interests and by providing the full variety of options, allow our clients to make informed decisions.
Practical Implementation – tips and traps:
The amount available in superannuation should not be the only consideration when deciding whether a SMSF will be right for your clients. Costs do form part of the consideration but it is far from the only consideration.
As well as the costs involved in maintaining a SMSF, other considerations, such as flexibility, wealth accumulation and retirement planning should also form part of the decision making process. All of these factors combined, will help your client’s determine what is the right structure for them.
So that our clients can make an informed decision, it is important that the information they are considering is comparable. If considering what costs are involved in running an SMSF compared to leaving their superannuation in a retail or industry fund, it is vital that all costs are compared.