Self-Managed Superannuation: Is it right for you?

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1 Self-Managed Superannuation: Is it right for you? A Special Report by DBA Accountants Mt Lawley, WA Copyright May 2010 The 6 Key Issues in Self-Managed Superannuation 1. Knowing what it is you are dealing with. 2. Informing yourself of the benefits and potential pitfalls. 3. Knowing how a SMSF works. 4. Answering YES to the two make-or-break questions. 5. Knowing who to approach for assistance with your decision. 6. Creating an alliance with an expert. Disclaimer This Special Report is intended only to provide information. It is not advice. Nobody should take action on the information contained in this Special Report without first having consulted DBA Accountants, Mt Lawley, WA. Business * tax * estate planning * self-managed superannuation

2 What is Self-Managed Superannuation? The title is almost self-explanatory: Self-managed superannuation is where super fund members set up their own fund and make their own investment decisions. This area of superannuation is governed by the Superannuation Industry Supervision Act (known as SIS for short) and the appointed regulator, whose task it is to ensure self-managed superannuation funds ( SMSFs ) comply with the law, is the Australian Taxation Office. A SMSF is a trust that is governed by its trust deed. Decisions are made on behalf of the fund by the trustees, who are also the members of the fund. The Trustee is responsible for managing and administering the fund for the benefit of members. In particular: 1. investing the fund s assets in accordance with member instructions and in line with the fund s investment strategy; 2. taking out insurance policies as instructed by members; 3. determining and paying benefits; and 4. ensuring appropriate records, accounts and reports are completed for the fund. The trustee carries out these responsibilities with the help of their various advisors. Typically, DBA Accountants undertakes 3 and 4. DBA does not advise on investments or insurances but we assist our clients by acting as questioner, interpreter and facilitator, and sometimes, as introducer to an appropriate specialist. What are the Benefits and Pitfalls? Superannuation is a complex area involving superannuation law, corporations law, tax law, administration and investment expertise. The legal and taxation frameworks within which superannuation funds operate and the financial markets within which they invest, are constantly changing. Therefore, fund members who wish to take control of their own superannuation investments need to obtain good advice on both the investment of their money and the administration of their SMSF. The Main Benefits of Self-Managed Super Allows the members to take control of the investment of their own superannuation monies. Investment is allowed in a wide range of assets. Control of investing can be exercised within the legal guidelines for superannuation, to significantly benefit the business activity of the members. Individuals or groups are able to have their own super fund.

3 Upon retirement, the members are able to take their benefits from the fund in the form of cash or annuities/pensions, or by way of assets transferred directly from the fund. A personal fund is totally portable with changing employment. The cost of managing a properly set up SMSF is largely fixed, whereas the fees charged by managed funds are based on a percentage of contributions, plus a percentage of funds under management, plus a percentage of earnings. These percentage fees rise continually as the amount of money in the fund increases, whether or not the fund manager is successful or is required to do more work. A SMSF becomes cost effective at approximately $100,000 of monies invested. There are significant tax concessions for contributions to super and for the earnings of super funds, both for income and for capital gains. Potential Pitfalls Inappropriate investment strategies can lead fund trustees into dispute with the Australian Taxation Office, as regulator of SMSFs. This does not happen to clients of DBA Accountants at least, not to those who follow our advice. A small SMSF will hold a limited range of investments and is therefore, vulnerable to fluctuations in the values of those assets. Larger funds are able to diversify their portfolios and so reduce their exposure to volatility in any particular class of assets. A small fund typically has access only to the legal, financial and investment expertise of its members and one or two professional advisers. Headaches and expense can be created by poor record keeping by clients. How a Self-Managed Super Fund Works The members of the fund are also the trustees or are the directors of the trustee company. The members, as trustees, administer the fund with advice from DBA Accountants (on matters of tax and administration) and make investments with advice from their investment advisors. The fund receives contributions from members and their employers. Those contributions are invested according to the investment strategy of the fund, as decided by the trustees. The 2 Make-or-Break Questions A self-managed super fund may be right for you if you are able to answer YES to the two make-or-break questions. Question 1: Do you have around $100,000 or more of superannuation assets or assets that could be transferred into superannuation? If YES, you may have enough

4 to make the fund cost-effective, as opposed to leaving the money with a fund manager. Question 2: As trustee of your own SMSF you will be entirely responsible for the investment decisions made, after considering the advice of your professional advisers. Can you sleep with this? If YES, a self-managed super fund may be right for you. If you were able to answer YES to the two make-or-break questions, a self-managed fund may be right for you. Who to Approach for Assistance If you answered YES to the 2 Make-or-Break questions, it could be that a SMSF is right for you. However, the wise and eventually wealthy person seeks counsel from knowledgeable advisers before making their own choice. You should seek out a professional who is approachable and who can answer your questions and guide you to a fully informed decision and then help you to implement your decision. DBA Accountants of Mt Lawley, WA pride themselves on being very good at doing exactly that. What DBA does for you Provide impartial and unbiased advice on the family, taxation and administrative aspects of an SMSF in the context of your wealth-building plans and estate planning, ensuring the superannuation strategy fits in with the overall strategy. Guide you towards the best choice for you and your family, then help you implement your decision. If the decision is to establish a self-managed fund, we Attend to the actual establishment of the fund, all initial documentation including applications and lodgments with the regulator, search of the lost super register and transferring monies from existing super funds to your new fund. Record keeping and statutory reporting, and arranging the audit of the fund. (We do not audit your fund, as we see an inherent conflict of interest in auditing our own work). Cooperate with you and with your other advisers in establishing and implementing investment and insurance strategies. Answer all your questions fully and honestly. Keep you informed of legal and taxation changes that might affect you and your fund. In doing all of this, we are conscious of the cost of our work but we are never trying to do a cheap job.

5 To assist our clients, we will do anything in our power that is legal, moral and ethical. Create an Alliance with an Expert DBA Accountants are experts in the establishment administration and client support of SMSFs it is what we do. You could ally yourself with us. Our internal systems and processes help us deliver consistently high quality work and advice to you. The systems and processes we install as we establish your SMSF and the guidance we provide will help you stay comfortably within the rules. You will sleep well at night. We maintain our own alliances with financial planners, insurance agents, lawyers and technical experts. We use our allies for the benefit of our clients. You will be allied to them through your alliance to us. To find out more, call DBA Accountants on (08) and have a preliminary talk to Murray Davey or Jodie Hutton. About DBA Accountants We are based in Mt Lawley, Western Australia, and from there, we serve family business clients, professionals and investors throughout Perth, WA, Australia, and overseas. DBA Accountants specialise in business, tax, self-managed super and estate planning. We help our clients increase their wealth. We define wealth very broadly to mean abundance, not just money. In pursuit of our purpose, we will do anything in our power that is legal, moral and ethical. For more on what we do, how we do it, and who we do it for, go to This Special Report is intended to provide information. It is not advice. Nobody should take action on the information contained here without first having consulted DBA Accountants, Mt Lawley, WA.