How to simplify management of your SMSF
Running a self-managed super fund does not have to be complex as long as the trustees ensure at the outset the structure is set up in the most streamlined way possible.
When it comes to ensuring the simplest structure possible, the first port of call is choosing a trustee. There are two options: individual and corporate.
Damian Liddell, a financial adviser with Browell’s Financial Solutions, says for most SMSFs, a corporate trustee is the best way to go for a host of reasons.
“The only reason you would not choose a corporate trustee is if you were worried about costs. In that case some trustees choose an individual trustee. But a corporate trustee is in the long-term a better option,” he explains.
Liddell explains using a corporate trustee simplifies estate planning and allows flexibility down the track. “If you have a husband and wife as individual trustees and one of them passes away, then all the investments need to be changed to the new trustee, which involves contacting all the share registries as well as a substantial amount of other paperwork.”
He also notes regulations don’t allow just one trustee to run the fund. So even if only one person wishes to open then fund, under an individual trustee structure, it would be necessary to appoint a second person as a trustee. In contrast, under a corporate trustee structure, it’s possible to have a single director of the company that is the trustee. “Appointing a corporate trustee is playing the long game, and a much better way to go,” Liddell says.
The regulatory system is another reason why it’s worth appointing a corporate trustee. In the event the SMSF is fined, if the trustee is corporate only the company will be fined. But in an individual trustee structure each person can be fined, which is also grounds for not having an individual trustees.
“Asset protection is another reason to have corporate trustee. It can also help when it comes to keeping SMSF assets separate from personal assets. If you have a company set up as the trustee and all the investments are in its name, it helps to identify which assets belong to the fund.”
When it comes to simplifying the process of goal setting and developing an investment strategy Liddell says the first place to start is a risk assessment.
“Risk is a relative concept. Some people might already have enough money accumulated. So they may not need to take on as much risk as other people. Setting your strategy is about understanding what you're trying to achieve. Often that can take considerable time, and involves doing projections and figuring out the return you need to generate. Once you have a handle on that it's about understanding the risk-return trade off, as well as liquidity and volatility,” says Liddell.
“After that, it's about focusing on asset allocation. That's where more than 80 per cent of your return will come from. But it’s important not to get too bogged down in picking specific companies, which a lot of people do and they end up tying themselves in knots,” he adds.
One way to simplify the way the fund invests is to use exchange-traded managed funds and other exchange-traded instruments, as well as managed funds, to achieve the fund’s required asset allocation. This avoids a situation where the trustees are constantly buying and selling direct shares to achieve the asset allocation they need, which incurs brokerage fees and also potentially gives rise to capital gains tax liabilities.
It’s also important to remember that the investment strategy must be regularly reviewed to ensure the assets in the fund are able to help members achieve their investment goals.
Record keeping is another area where it pays to focus on being as streamlined as possible. Liddell recommends using an online administration provider.
“Outsourcing these tasks is very cost effective, and gives you internet access around the clock to your SMSF’s records,” he explains.
This service will be able to help ensure the fund remains compliant and ticks regulatory boxes such as filing an annual return. This service will also look after the fund’s annual audit. Says Liddell: “The better ones will also make sure the fund meets its minimum pension payment requirements.”
Running an SMSF can be complex. But there are many tools available to help you minimise the time taken to manage it and ensure the fund meets its regulatory requirements. It’s worth exploring these tools to ensure your fund is managed in the best way possible.