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News Bulletin : ADA News Bulletin March 2011
42 MARCH 2011 investment insight If you have a DIY super fund or are considering setting one up, ask yourself what you are trying to achieve with a SMSF. What do you intend to invest in? Do you have the time and desire to be responsible for the compliance and administration of your own self-managed super fund? If you are one of those people who tend to ignore their superannuation or if you don't understand how superannuation works then a DIY super fund is definitely not the right choice for you. USING A SUPERANNUATION WRAP ACCOUNT AS AN ALTERNATIVE TO A SMSF There are alternatives to a SMSF that provide investors with flexibility and control over their investments without needing to take on the responsibility for compliance and administration. Those who read the article 'How to choose the best WRAP account' (Investment insight, February 2011) will be aware that a WRAP account is a portfolio administration service. A super WRAP account is specifically designed for superannuation and gives investors access to a wide range of investment options and is a viable alternative to a SMSF. Although, a WRAP account doesn't allow you to invest your superannuation in direct property, it will provide access to wholesale and boutique managed funds, shares, term deposits and cash. Personal Choice eWRAP Super/Pension is available directly to investors without needing a financial adviser thus avoiding unnecessary adviser service fees and commissions. This WRAP account currently offers access to ASX Top 300 shares, about 380 wholesale managed funds, term deposits and cash. This range of choice allows investors to construct a suitably diversified portfolio including many international markets -- an area often overlooked by many SMSF funds. A super WRAP becomes advantageous when it comes to ongoing administration and compliance. Taxation on contributions and investment returns (income and capital gains) is managed by the Custodian/Trustee of the superannuation platform. Investors also have 24 hour online access to view their portfolio and run reports in real time. It is difficult to effectively manage a SMSF without current information. Many members and trustees of DIY funds are behind in filing their annual returns or administering their funds that the information is out-of-date by the time reports are prepared. As Table 2 shows, Personal Choice eWRAP Super may be a cost- effective alternative for investors who are interested in getting increased control of their superannuation assets but don't want to take on board the role of Trustee and the compliance and administration hassles of a SMSF. As your super fund assets grow the administration costs decline to 0.10% for amounts above $750,000. Table 2 Invested balance SMSF -- accountant* Specialist SMSF administration service* Personal Choice eWRAP Super** $250,000 $2,000+ $2,520 $1,783.75 $500,000 $2,000+ $2,760 $2,802.50 $750,000 $2,000+ $3,240 $3,750.63 *Fees are approximate only and may vary depending on the accountant or specialist provider used. Excludes annual audit fee which typically ranges from $330 -- $550. **Assumes a 10% balance held in cash. No administration fees are charged on the cash account balance. Set up costs for a DIY super fund range between $400 and $800 with annual running costs for audit and filing of returns starting from $2,000 depending on the complexity of the funds investments. Some customers have advised that they pay their accountants upwards of $5,000 per annum for looking after their DIY super fund. As a rule of thumb you should have superannuation assets of at least $250,000 before considering a DIY fund. With fees for audit, annual returns and administration costing about $2,500 before any investment is made. This equals 1% of the funds balance which can quickly eat up any potential savings. An approximation of fees charged by accountants and specialist administration providers have been included although an accountant will usually be the cheaper alternative for administering a SMSF. It is recommended that investors consider a specialist service as superannuation is a highly technical and ever-changing area. Many suburban accountants who have added SMSFs to their business are not equipped to keep up with these changes. The ATO recently identified that approximately 27 per cent of approved auditors audit only one fund and approximately 51 per cent audit five funds or less. Specialist knowledge and understanding of the SIS legislation can only be provided by professionals who work, live and breathe the SMSF industry every day. They will be able to provide up-to-date information and communication about changes to the laws and timely valuation of your portfolio. If you are committed to setting up your own SMSF or already have one consider using a specialist administrator. CONCLUSION In conclusion, the concept of operating a SMSF is great but the reality for many busy professionals is that a direct Super WRAP account offering flexible investment options may be a better alternative. If you already have a SMSF and are not running it properly you may consider switching to a superannuation WRAP account that gives you the required flexibility without onerous compliance requirements, allowing you to focus on your particular area of expertise. Michael Lannon is the Founder and Executive Director of 2020 DIRECTINVEST, an ADA Partner Service specialising in the provision of execution only DIY investment services. Contact firstname.lastname@example.org or call 1800 352 021 Visit www.2020directinvest.com.au This article has been prepared without taking account of your objectives, financial situation or needs; and because of that, you should consider the appropriateness of the advice, having regard to your objectives, financial situation and needs.
ADA News Bulletin February 2011
ADA News Bulletin April 2011