Self Managed Superannuation Funds (SMSF’s) have been around for a long time; however it’s only in recent times, particularly the last 5 years that everybody has become aware of them.

The most likely reason for this is that large amounts of private retirement wealth have been diverted from retail, corporate and industry superannuation funds into SMSF’s. This is particularly threatening to the financial institutions and their commissioned agents as they are seeing their accumulated nest eggs, which were set up over a long period of time and designed to provide handsome trailing commissions with very little effort, disappearing.

I emphasise that these institutions actually deemed the superannuation accounts of their clients more as their own wealth and future income stream than that of the clients they were meant to be the trusted custodians of. The larger the accumulated account, the lazier and the greedier they become.

Switching from superannuation accumulation phase to superannuation pensions only encourages more fee taking and more impositions of cost, with very little awareness of client real needs and the dramatic impact changes from employment to retirement could have on clients. It’s only over the past five years, where the accumulated retirement balances were at their highest point, and subsequent GFC impacted dramatically on the increasing population of retirees, that the cushy arrangement of high fees (mostly in excess of the investment performance)  have come to light.

The other failing was the inactivity of fund managers and advisors to protect their client’s retirement balances. By in large the “industry” was far more concerned in defending it’s ‘holding onto the pot of gold’ than looking after the individual account holders. The best they could come up with was often to reassure the retirees to ‘hang on to their current positions and allow the market to correct itself’. Unfortunately, not much has changed.

It’s easy to see why individuals started taking the control out of the hands of their trusted fund managers and started looking for alternatives. SMSF’s have boomed and are now a very significant threat to traditional public superannuation funds. Most banks, fund managers and retail superannuation funds now offer some version of a SMSF administration system in an effort to hang onto their retirement funds.

But are SMSF’s your best retirement investment vehicle?

We believe that for many of our clients approaching retirement, SMSF’s are certainly a part of the overall financial planning strategy. But by no means are they ever the total, or the only solution.

In fact, the SMSF structure takes a lot of “Self Management”. Only a very small percentage of retirees would have the skill, the commitment and the expertise to manage a superannuation fund. Calling it “self managed” creates a false impression. The mass marketing of SMSF’s is of great concern to any of us seriously committed to this profession. Setting up a fund and managing the administration, investment strategy, compliance, tax, estate considerations, member’s accounts, trustee’s obligations, accounting and auditing, accumulation and pension stages are serious and complicated issues.

Superannuation legislation is complex. The obligations of the superannuation trustees (members), accountants and advisors are onerous and carry heavy penalties for breaches.

The savings in costs of having a SMSF versus a retail superannuation fund can indeed be significant, depending on the level of investment funds and the complexity of investments, however there are numerous other considerations in deciding which structure, and at what time may be most appropriate to your individual needs.

Importantly, a superannuation fund, be it self managed or retail is never your total retirement planning solution, but only a part of the overall strategy considerations.

Always be cautious of any product including SMSF and be aware of its benefits, its disadvantages, and its alternatives.