Do you need a SMSF (Self Managed Superannuation Fund)? We talk to Financial Adviser Jenny Brown about Self Managed Superannuation Funds, better known as SMSFs. They have been flavour of the month for many years but what exactly are they and should you have one?

Jenny responds to the key questions but if you have a question of your own, send it in via the comments section or directly to Jenny whose contact details appear below.

Briefly explain why you believe SMSF has become so popular

People are getting more savvy and with information at our fingertips through the use of the net, they are questioning their finances more and understand that they can get more out of what they have.  We are also finding there’s a growing dissatisfaction with managed funds and a desire to have more control and choice with the investment of their money within superannuation.

It’s become common knowledge that you can buy property within a SMSF and bricks and mortar have always been a favoured asset for Australian investors.  With new legislation allowing borrowing (of sorts) within a SMSF, the idea of property is closer to the normal investor than ever before.

Whatever the reason, there is no denying that the use of SMSFs has and will continue to increase.  At 30 June 2012, there were around 478,000 SMSFs holding about $439 billion in assets.

Can you give a ‘picture’ of someone who would benefit the most from a SMSF?

The demographic that seems to utilise and benefit from using a SMSF most are are those people that have a reasonable balance and are starting to think about the true nature of superannuation – retirement!  They are the ones who open their super statement and look at the balance and return to see how their money is travelling and how many more years they need to work before they can throw it all in.

They want control, choice, and flexibility, but also want guidance from a professional along the way.

What type of person should avoid a SMSF?

SMSFs are for those people who have a reasonable investment balance, like over say $200,000 and who want more control and involvement in the management of their retirement funds.

There’s a lot of requirements for the trustee or director of a corporate trustee that you must adhere to and if you don’t and your fund becomes non-compliant, your super funds could be subject to a high level of penalty tax as well as having some hefty fines and/or jail for you as the trustee who should’ve known better.

So if you’re excited that you just hit $50,000 in your super or you’re the type of person that opens that statement, realises what it is and then puts it straight in the recycle bin (or worse the ordinary one) then you shouldn’t have a SMSF – at least, not just yet.

What can a SMSF invest into? Are there limitations?

The simple answer to this one is almost anything as long as it is commercially viable. Firstly, your SMSF will need to have an investment strategy which sets out what you can and can’t invest into but as the trustee or director or a corporate trustee, you’re the person that determines this so you control the rules.  If your investment strategy doesn’t allow the asset you want to invest into, you can change your funds Investment Strategy to ensure your fund remains compliant.

The majority of funds held in SMSFs at present are invested in cash (including term deposits), direct shares and direct property but you can also invest in other assets such as listed and unlisted trusts, managed funds, debt securities, derivatives and instalment warrants, collectibles (like paintings or sculptures), and international investments just to name a few. And now thanks to new legislation, you can even borrow to invest into some of these assets via certain types of loans or warrants.

Like anything though, there are some restrictions like how you buy your assets and who from so don’t just go nuts buying everything in sight.  All assets need to adhere to two main rules: sole purpose test and arms length acquisition.

Can you have more than one SMSF?

You can but really why would you.  Unless you’re running a double life or have substantial funds with one existing retail or industry fund holding the majority of funds in tax-free component, you wouldn’t really need to.  You can structure almost anything within a SMSF – two members in different phases, you want an accumulation and pension account, not a problem!

Can you get Life Insurance cover within SMSF?

Personal Insurance can be taken out without a SMSF and with new legislation, the trustee of the fund is obliged to review insurances of all members.  You can have Life, TPD and Income Protection within your SMSF.  But like everything else there are rules and as a trustee you must at least consider insurance for all members.

Why do people come to you for a SMSF?

I’m a specialist in this area having the SMSF Specialist Adviser ™ (SSA) accreditation, with 21 years’ experience in the financial planning industry.  Our advisers in the business also hold accreditation to provide advice on direct equities.

Our typical client wants a financial coach who specialises in SMSFs and look for strategies to help them create wealth.  They want to know that their adviser is proactive and not reactive.  That we will call them before an issue or problem occurs or when legislation changes that may affect them.

Can you help people online, or do they need to see you physically face-to-face?

While we like to meet with our clients to get a better understanding of who they are and what they want, we also provide a full on-line service including Skype and other forms of technology where we can do all appointments at a time and place convenient for you.

Do you have a question for Jenny Brown? Ask it here or ask her directly using the contact details below.

Contact Jenny and Her Team

.photo credit: kenteegardin via photopin cc

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