The Top Ten Pitfalls of Self Managed Super Funds

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I have spent 12 years working in financial advisory practices in Sydney as a financial adviser (between 2000 and 2012). A considerable portion of my time as an adviser was devoted to researching, reviewing and analysing superannuation funds, investments and strategy.

What continually confounds me, and has inspired me to write this book, is the nature in which large sections of the financial services community talk in endless superlatives about self-managed superannuation funds (SMSFs). The real disadvantages are rarely mentioned, the horror stories are never discussed, and the consumer is none the wiser. Whenever I read an article about how superior SMSFs are as a superannuation solution, it comes with the same old tired set of flimsy caveats, such as ‘you have greater responsibility with an SMSF’, or ‘SMSFs are more time-consuming to operate’, or ‘as a trustee, you have to make sure you comply with all the rules’. Yet the disadvantages and trade-offs in transferring your super to an SMSF run much deeper than this…and could end up costing you tens of thousands of dollars. Surprisingly, even to this day there is a distinct lack of information on the subtle dangers and drawbacks of SMSFs even from regulators such as APRA, ASIC and the ATO.

In my opinion, the nature in which the SMSF industry promotes its product without warning consumers of the significant disadvantages of SMSFs, borders on the negligent and at the very least is misleading and deceptive. Any adviser or service provider that is promoting SMSFs as the ‘Rolls Royce’ of super funds is walking on a slippery slope.

SMSFs have become a status symbol, a means of rebellion against the retail financial industry and its rapacious fee structures, and reflective of growing resentment towards government in dictating to us how we should accrue our savings over our lifetime. It represents the final act of taking back control of what is rightfully ours. I can understand the sentiment, but an SMSF may not be the solution you are looking for.

At a time when the SMSF establishment rate shows no signs of slowing, this book aims to highlight to consumers some of the features, benefits and inbuilt protection mechanisms that apply to APRA-regulated super funds that will be foregone if they go down the SMSF path. Perhaps the forefathers of modern superannuation regulation and design were wise after all.

This book represents the knowledge and experience gained from 14 years of professional research, practise as a financial adviser, undergraduate and postgraduate study, and personal attendance at over 150 industry specialist technical workshops and seminars presented exclusively to finance professionals by Australia’s leading superannuation and taxation experts.

As a former financial adviser, I do not stand to gain anything by pushing a certain agenda. The aim of this publication is to bring to the attention of the consumer the deficiencies that exist with SMSFs that are swept under the carpet by so many in the industry. This book also aims to dispel some of the myths regarding SMSFs that have become so entrenched they are now widely taken as fact. In my view the major selling points of SMSFs often touted by the industry are somewhat flawed. In this book, among other things I challenge the notion that SMSFs give you greater control, greater investment choice, lower fees and greater taxation advantages. In some aspects of SMSFs these things are true, but in other aspects they are completely wrong.

Trevor Harris