The practice of calling self-managed super funds, ‘DIY super funds’ upsets the regulator (the ATO), and also concerns many of the service providers making a living from helping individuals set up, and run, self-managed super funds (SMSFs).
The key message emanating from the SMSF industry is that you can’t possibly do it all yourself; you need professionals to help you run your super fund because of your fund’s myriad Compliance, Administration, Reporting and Tax obligations (what I call your DIY super C-A-R-T).
True or false? If you run a SMSF, is it possible to steer your own super C-A-R-T without expert assistance? Well, the key message from the industry, that is, SMSF trustees need industry specialists, is indeed true . . . and false.
Most Australians who consider running their own super fund understand that ‘DIY super’ is a term to distinguish from the large funds that look after your super benefits for you. The greater concern is whether those individuals who take on the responsibility of running a SMSF have the skills to do so; and, if they don’t have the expertise, whether they know when to call in the experts.
Going it alone
Are you required to use experts when running your own fund? Strictly speaking, you need only appoint an approved SMSF auditor to audit your fund.
Under the super laws, SMSF trustees (like all other superannuation trustees) are permitted to set up and administer an SMSF on their own, including looking after the investment side of the fund, reporting requirements, and paying retirement benefits.
If you are prepared to dedicate sufficient time and research to the role of SMSF trustee, then the possibility is there for you to look after your fund’s C-A-R-T (compliance, administration, reporting, and tax management) obligations, which can keep costs to a minimum. If a trustee doesn’t pay for investment advice or other services, then the only essential costs to consider are investment transaction costs, audit fees for the annual review of the fund and the annual ATO supervisory levy of $259.
SMSF trustees who are intent on doing everything themselves however, usually don’t draft their own fund’s trust deed. In most cases, such individuals still buy a trust deed from a solicitor, or from an administrator who has arranged for a solicitor to draft a standard deed.
Tip: If you plan to prepare all of your fund’s records, including member benefit statements, benefit payment summaries and year-end reports such as your fund’s operating statement and financial position, your best chance at complying with the super rules is to use specialist SMSF software. You can learn more about the different types of SMSF software available by doing a search for SMSF software on the internet. If your fund is relatively simple, you may only require a simple spreadsheet program such as Excel, but make sure that you correctly track your members’ super contributions and benefit components.
Watch your reporting obligations
Often, the stumbling block for those seeking to independently run an SMSF is in meeting the fund’s reporting requirements, including year-end reporting and the lodgement of fund returns. The actions taken by such SMSF trustees generally fall into two main categories:
- Delegate year-end reporting and return lodgement. You may choose to complete all of your fund’s administration, compliance and recording obligations, apart from your fund’s year-end accounts, and the preparation and lodgement of your fund’s annual return. If you get an accountant to do your year-end reporting, you may find it cheaper over the longer term to use the same reporting program that your accountant uses. If you run a simple fund, with only a handful of transactions, and you don’t have to prepare any major reports (such as benefit payment reports) during the year, then the accountant may be happy to rely on your own software or hardcopy records when producing the financial reports, and completing and lodging your fund’s tax and compliance return. You then need only to satisfy your approved SMSF auditor’s demands.
- Do everything and give final accounts and fund records to approved SMSF auditor. If the only expert that you intend to use when running your SMSF is an approved auditor, then you must prepare your own fund reports, including year-end reporting and member benefit reporting. Over the longer term, costs are usually cheaper if you use the same reporting program that your auditor uses because he or she can more easily include your fund in the practice’s annual SMSF auditing program. In some cases, an approved SMSF auditor may require you use a certain software program as a condition of appointment.
Note: The fees quoted by a service provider for a stand-alone fund audit can be generally higher than the audit fee quoted as part of a complete compliance and administration service, but not always.
Take your pick from three choices
As a SMSF trustee, you have total control over how you run your self-managed super fund. Generally speaking, you can choose from one of three different approaches when meeting your SMSF trustee obligations:
- You can do everything yourself, apart from using an approved SMSF auditor (refer earlier).
- You can delegate all of your trustee tasks to a service provider.
- You can delegate only part of your trustee workload.
Delegating your SMSF trustee to-do list means finding a suitable SMSF adviser/SMSF provider for your fund. Besides choosing accountants and financial advisers who specialise in SMSFs, you can also access several online and/or face-to-face service providers. These providers can support your fund with establishment services, ongoing administration and compliance services, and one-off transactions.
Many of these providers have relationships with adviser groups and some are also owned by financial organisations. Some stand-alone administrators have even diversified into selling financial products to SMSF trustees. After all, as soon as a firm has your fund’s administration contract, you’re a captive audience!
If you decide to go extreme and opt for a complete package — you get an administration service for your compliance and reporting requirements, a financial adviser, a wrap account for your investments, a tax agent, an approved auditor and a relationship manager to hold your hand while the service provider ‘steals’ your money. Huh? Only kidding about the theft comment, but you can be charged a lot of money if you sign on for one of these complete package deals. For example, on a $400,000 account balance, sometimes these complete service arrangements can cost you up to $16,000 a year, or 4% of your account balance, and even more. Although, you can find other full-service (excluding financial advice) providers in the marketplace who promise to charge you no more than 1% of your account balance.
Alternatively, if you wish to be more hands-on, you can opt for administration assistance for, say, one aspect of your fund’s operation, such as financial reporting or tax management. Or perhaps, you want a service provider to set up your fund for you, but then you want to do the rest yourself.
Note: You can’t delegate your ultimate responsibility as SMSF trustee. You can appoint a fund administrator to look after all, or part, of your DIY super CART obligations, but you remain responsible for what happens in your SMSF if something goes wrong.
This article has been adapted from sections of Trish Power’s, DIY Super For Dummies, 3rd Australian edition (Wiley). Reproduced with permission.
For more information on running a SMSF…
For more information on setting up a SMSF, running a SMSF and other SMSF administration and compliance matters, see the following SuperGuide articles:
- How to evaluate whether an SMSF is right for you
- Do you fit the latest profile of a ‘typical’ SMSF trustee?
- SMSFs for Beginners: Trish’s 10 commandments of DIY super
- SMSF trustee declaration: a quick guide
- SMSF providers: What should I look for when setting up my DIY super fund?
- SMSF compliance: Is your fund due for a super service?