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SMSF Risks


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It is important to understand that whilst there are many benefits to setting up an SMSF with ESUPERFUND, consideration must also be given to the risks associated with setting up an SMSF and these risks are briefly summarised below:

 
 
ESUPERFUND is a No Advice Model

ESUPERFUND is a no advice model and does not provide financial advice or recommend if an SMSF is appropriate for your particular objectives, financial situation or particular needs.  We recommend that you seek professional advice from a financial adviser before making any decision to establish an SMSF with ESUPERFUND or to purchase any financial product referred to on this website.  A licensed financial adviser will consider your personal situation and make a recommendation suitable to your particular financial needs.  Importantly however using a financial advisor is optional and it is totally your decision if you wish to appoint one.  

It should always be remembered that if you setup an SMSF with ESUPERFUND, you will be the Trustee of the SMSF. Therefore, you are legally responsible for all the decisions made even if you obtain advice from a Financial Planner.  Whilst a Financial Professional can provide advice and assistance you are ultimately responsible for the Fund.  Always remember that ESUPERFUND cannot advise you about which super fund best suits you or which investments should be in your Fund. Importantly you should consider all your super options before making a decision about managing your own super. 

 
 
Trustee Time and Skills required to run an SMSF

The Trustees of an SMSF control the SMSF and make all the Investment decisions for the SMSF.  The Trustees are also responsible for complying with all legal obligations including ensuring that the SMSF prepares and lodges an annual tax return with the ATO. Accordingly prior to establishing an SMSF you should consider the amount of time and skill you will need to devote to managing your own SMSF.  As a trustee of an SMSF, your primary responsibility is to ensure you have invested your fund's money appropriately, so ask yourself the following questions:

1. Am I a confident and knowledgeable investor?
2. Will an SMSF do as well as or better than other super funds after I pay all the costs? 

If you are not confident you can get a better result by managing your own super, you may be better off leaving your super to be managed by super professionals.

 
 
Minimum Setup Balance and SMSF Fees

You need to ensure you have enough super savings to make your Fund viable. This is based on the balance in your SMSF and the costs to run the Fund.  With ESUPERFUND there is no setup fee and the ongoing fees are detailed in the Fees section of our website.  You will also need to consider additional fees such as brokerage fees if you intend to trade shares and the annual ATO supervisory levy (currently ) for example.  

Whilst there is a general consensus that you need $200,000 to operate an SMSF this may not be so given our low fee structure. However whilst there is no legislative minimum balance required to setup an SMSF it is important you compare your current super fees to the fees to operate an SMSF to determine if an SMSF is right for you.  Ultimately you can establish an SMSF with any amount desired. Consideration should also be given to new low cost super offerings under MySuper which may better suit your Superannuation requirements from an investment and fee perspective. 

 
 
Investment Risk

The Trustees control the SMSF and make all the Investment decisions for the SMSF.  All financial decisions carry risk, so it is important to think carefully about how you choose your investment options to balance the level of risk against the level of financial return. You also need to be sure your super investments are legal and comply with the permitted investments under the ESUPERFUND Platform detailed under the Investment section of our website.

It is also important to think carefully about how you choose your investments. When thinking about how to manage the risks associated with your investment options, we recommend you consider your age, what level of risk you are comfortable with and the objectives you have for your Fund.  By spreading your investments (diversifying) you can help control the total risk of your investment portfolio. If one or more of your investments perform poorly or fail, the other investments may be performing better to help cover the loss.  Effectively spreading your risk means investing not just in different companies or different sectors of the market, but in different sectors of the economy. This means not spreading your money between different companies within the same group or only between different companies of the same type such as resources companies or banks.  Importantly diversification is a not a legal requirement but only a consideration all Fund Trustees must consider when making Investment decisions for their Fund.  For a wide range of investment tips and safety checks, visit ASIC's website for consumers and investors at www.moneysmart.gov.au

 
 
Life Insurance

Whilst it is optional, if you set up an SMSF, you should ensure that you have adequate life insurance in case you die or you are unable to work because of an illness or accident.  Most APRA regulated super funds offer life insurance benefits up to a certain level if you die or you are unable to work because of an illness or accident at a low cost because they can buy group policies at discounted rates. You may need to consider additional costs for insurance when comparing the benefits of an SMSF with your existing Fund. 

ESUPERFUND offer a non compulsory Insurance Service with AIA under the Insurance section of our website.  You can obtain a quote easily online enabling you to compare Insurance Premiums payable if you insure via an SMSF versus insuring through your current Fund. Learn more about insurance.

 
 
Absence of Government Compensation

SMSF Trustees have fewer avenues of recourse against fraud and theft compared with Trustees of the Australian Prudential Regulation Authority (APRA) regulated super funds.  That is APRA-regulated super funds are subject to prudential regulation. SMSFs are not prudentially regulated but are subject to compliance-based regulation by the ATO, with the focus on compliance with super laws. This approach recognises that members of SMSFs must be trustees and are in a position to protect their own interests. 

Under existing super laws, no government or industry compensation is available for members of super funds operating outside the regulation of APRA.  The trustee of an APRA-regulated fund that incurs a loss as a result of fraudulent conduct or theft can apply to the minister for a grant of financial assistance. Compensation payments are made from consolidated revenue and a levy may be imposed on APRA-regulated funds to help fund the government's financial assistance program. The effect is that a loss in one super fund is borne by the members of all funds that pay the levy.  SMSFs are excluded from applying for financial assistance under the super laws unless the fund was an APRA regulated fund at the time when the loss occurred. As a result, the financial assistance levy is not imposed on SMSFs.  

A key characteristic of an SMSF is that all members are involved in the decision-making process and control the management of the Fund. SMSF members generally have more control over, and choice in, their investment strategy and portfolio than members of APRA-regulated funds. A consequence of exercising this control means accepting responsibility for all investment decisions regardless of the outcomes. More can be found on the ATO website at: 
https://www.ato.gov.au/Super/Self-managed-super-funds/Investing/Your-investment-strategy/

 
 
ATO Publications

The ATO have a range of Publications about SMSFs which should be reviewed carefully when deciding if an SMSF is right for you.  They can be found below:

ATO Publication: Thinking About Self Managed Super
ATO Publication: Setting Up an SMSF
ATO Publication: Running an SMSF
ATO Publication: Winding Up an SMSF
ATO Publication: How your SMSF is Regulated