Four pillars of a successful SMSF
Running a self-managed super fund is a serious responsibility. Trustees must ensure they fully understand their obligations around the fund and how to discharge them. Here, we explore the four main pillars that support every well-run, compliant SMSF.
1. Commit to fully understanding the super system and continuing education
There’s a lot to understand when you decide to run your own SMSF. Even the requirements for establishing an SMSF are complex, and include setting up a trust deed, finding an accountant and choosing trustees.
Putting in place an investment strategy, understanding how tax works in the fund, not to mention getting across the increasingly complex super legislation, takes time and effort.
The message for trustees is to ensure they have the time to do this in the first place, and to commit to staying abreast of the ever-changing super system.
Deciding to open an SMSF is a long-term proposition, not a set-and-forget strategy. So ensure you are in it for the long haul before you establish your fund.
“Understand the superannuation and tax systems and how different strategies can add value,” says Liam Shorte, director of and financial planner with financial advice firm Verante.
“Use all the free resources on the internet like blogs, community forums, and ATO SMSF videos and read a little regularly,” he says.
2. Choose your administration provider carefully
The fund should have an administration provider that takes the hassle out of all the compliance and paperwork requirements that accompany running an SMSF.
“No one likes to handle paperwork. We’ve all got better things to do with our time. You need a portal that you can log into that provides daily updates for account balances, asset allocation and member balances,” says Damian Liddell, a financial adviser with Browell’s Financial Solutions.
“Additionally, your admin provider should be able to seamlessly prepare and produce your annual fund return and audit,” he adds.
Look for a service that matches your requirements. For instance, if you have a simple fund, find a provider that offers sound essential services. If you have a more complex asset structure in your fund, look for a provider that can cater to more intricate investment needs.
3. Build a long-term investment strategy
It is important to remember an SMSF’s sole purpose is to help support its members’ living requirements in retirement. As such, its investment strategy must be structured to meet this goal.
The investment strategy must clearly state the SMSF’s investment objectives and set out the different types of investments the fund can buy and sell.
The strategy must be written down and there is an obligation to review it on an ongoing basis so that the assets in the fund remain capable of supporting members’ needs in retirement.
The trustees must also consider in the strategy whether members require insurance.
“It’s absolutely essential to have a clear and well-thought-through investment strategy,” says Liddell.
“Make sure the fund is truly diversified and when you think you’ve got diversification covered, diversify some more,” he adds.
The investment strategy should also ensure there’s sufficient provision for the fund to meet commitments such as pension payments, tax obligations, as well as accounting, audit and regulator fees.
Says Shorte: “Invest to meet your long term goals, not just to access the latest hot sectors. See what others are doing especially in terms of diversification but concentrate on your objectives.”
4. Know your strengths and outsource work others do better
Given the complex regulatory environment, most SMSFs needs ongoing professional advice provided by an SMSF expert.
“SMSFs need advice from someone who has their finger on the pulse, not necessarily just to stay within the rules but also to take advantage of them,” advises Liddell.
“Professional advisors can help trustees formulate a plan and manage their investments. They can also provide advice about tax planning for the fund as well as help manage investment costs,” he adds.
Most trustees also want to play an active role in their fund. So it’s important to strike the right balance between accessing expertise to ensure the fund is run in the best way possible and at the same time staying involved and engaged in the fund to ensure it produce the best possible result, within the confines of the law.