Inaction: A Common Pitfall

It’s astonishing how many individuals have their super funds set up only to let the money sit idly in cash. This tendency often stems from a lack of understanding about available options or a state of paralysis caused by over-analysis. However, if an SMSF is deemed suitable and you choose to take control of your own funds, it’s imperative to formulate a strategy and a comprehensive plan for their utilisation.

Ignoring Costs: A Costly Mistake

The expenses associated with managing a fund can quickly escalate if not properly assessed. Before diving into the world of SMSFs, it’s crucial to meticulously outline all foreseeable costs, including:

• Initial fund setup fees
• Additional costs if opting for a corporate trustee structure
• Expenses related to borrowing within the fund
• Ongoing accounting and auditing charges
• Investment costs, including brokerage fees for trading shares or property acquisition expenses such as stamp duty and legal fees
• Ongoing expenses tied to the chosen investments
• Potential fees for financial advice

Only by fully grasping and accounting for these costs can you make an informed decision about whether an SMSF is the most financially viable option for you.

Time Commitment: Often Overlooked

• Many individuals fail to anticipate the significant time investment required to effectively manage an SMSF. Beyond devising an investment strategy, managing the fund demands ongoing commitment in various areas:
• Continuous research and education to stay informed about market trends and investment opportunities.
• Active investment management, whether it involves trading shares or overseeing property maintenance
• Personal responsibility for tax obligations, including the meticulous preparation of annual tax returns

While some tasks can be outsourced, it’s essential to weigh the associated costs against their potential impact on the fund’s overall returns.

Legal Responsibility: Understanding the Risks

Opting for an SMSF means assuming the legal responsibilities of a trustee. This entails adhering to the regulations outlined in the SIS Act and operating within the confines of the Trust Deed. While SMSFs offer flexibility, trustees are subject to evolving rules, and any breaches can lead to significant liabilities. While financial professionals can offer guidance, trustees bear ultimate responsibility for compliance.

Benchmarking Returns: A Necessity

One common pitfall in managing super funds is the failure to effectively benchmark returns against market performance. Without a clear point of comparison, it’s easy to misinterpret investment results. Whether managing an SMSF or relying on fund managers, it’s essential to assess performance accurately to gauge success and identify areas for improvement.

Document Management: Ensuring Compliance

Maintaining thorough records is essential for SMSF compliance and accountability. Key documents, including financial records, annual statements, and trustee meeting minutes, must be retained for specified periods. These records not only facilitate audits but also serve as evidence in case of disputes or claims, ensuring transparency and regulatory adherence.

Listen in to Paul chat with John Mackenzie on 4CA Cairns and find out more: