There are plenty of reasons people have for setting up a self-managed super fund (SMSF), but bugger all of them are good.
According to the Vanguard 2015 Self Managed Super Fund Report, some of the bad reasons reported for wanting to start an SMSF included:
- Following advice from my accountant (are they advising you because it’s in your best interest or for the extra work coming their way?)
- Seeking more tax efficiency (shouldn’t be a difference between the tax treatment of a retail or industry fund and that of a self-managed super fund)
- Wanting to choose direct shares (there are a growing number of retail and industry funds that allow you to invest in whatever shares you want, but if you wish to invest your super in direct property you do need to do it via an SMSF)
- Saving money on fees (only really relevant for people who have a decent starting amount in super – see below)
- Taking advice from a friend with an SMSF (probably the dumbest reason of the lot, unless of course the friend has the same amount in super, the same income, family circumstances and understanding of investments as well as the same ability to run an SMSF)
The number one reason people gave as to why they wanted to have an SMSF was to have more control over their investments. I can completely understand why a finance professional would want to take control of their super. Their knowledge and expertise would be greater than the average person’s and there is a fair chance they could achieve the same sort of return as a large super fund without the added expense of fees. But I just don’t get why there are so many people jumping at the complicated chance to handle their own super, especially those who are busy raising families and building careers. It’s a lot of work and the costs outweigh the savings unless you have at least $300,000+ in your super.
So next time a friend tells you that you should start your own super fund, politely change the topic.