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By Dylan Cresswell, Manager - Privately Held Business
In recent times there has been an increase in the number of new clients who are considering closing their existing Self-Managed Super Fund (SMSF).
In reviewing these clients situation it became obvious the obligations, costs and potential Trustee penalties outweighed the benefits provided by being your own Trustee.
Clients often initially create their SMSF as they believe they will be provided with increased flexibility for investments and Trustee planning. Often clients have been considering purchasing a direct property or believed they could outperform the markets under a DIY approach.
- Case study
Recently a husband and wife met with us to review whether their $500,000 SMSF was still appropriate. The annual costs involved included $3,500 in administration compliance costs and a further $10,000 in stockbroker fees. Total costs incurred of $13,500 or 2.7% of the fund.
The couple initially liked the implied prestige with managing their own fund, and felt they created it, as ‘everyone was doing it at the time’. However when we explored the reasons for a SMSF the client confirmed direct property investments were unlikely. They then identified they didn’t have the skills or future desire to actively manage the investments personally and had become resigned to the fact of outsourcing as much as possible. They were also unaware of the updated ATO penalty regime for SMSF’s that came into effect in July 2014.
Grant Thornton Private Wealth advice included a recommendation to wind up their SMSF and rollover to public offer funds that offered direct shares, term deposits and a large selection of passive and actively Managed Funds. Therefore, the combined ongoing administration and investment costs were reduced by $6,500.
The greatest value to the couple appeared to be the peace of mind that leading into their retirement and growing older all administrative needs would be taken care of by an external Trustee and there was no need to worry about doing something wrong. The clients are now able to focus their time and energy on doing what’s important to them including travelling, gardening and spending time with family.
Whilst there are certain Trust Deed, ATO and compliance requirements that are involved in winding up a SMSF the process and cost incurred is immaterial and in all cases individuals are not restricted from recreating a new SMSF in the future.