Choosing an SMSF service provider

When weighing up whether to seek advice, and the type of provider you should choose, consider factors such as:

• Your level of knowledge about SMSFs and investments
• The extent to which you want (or need) to outsource tasks associated with setting up and managing your SMSF.

It’s important to understand that even if you outsource some tasks, as a member of an SMSF you’ll also be a trustee of the fund and ultimately responsible for its compliance with superannuation and taxation legislation.

Compliance includes reporting and taxation obligations to the Australian Taxation Office (ATO). There can be substantial fines or other penalties for non-compliant SMSF funds, even if the lapse was unintentional.

What kind of SMSF provider will I need?

SMSF service providers can be divided into one of two broad categories:

1. Specialist SMSF services (such as legal, taxation, auditing, administration or investment advice)
2. ‘One-stop shops’ that integrate all the SMSF services outlined above (integrated service providers).

If you choose specialist service providers, you’ll need to be more active in coordinating their activities. For example, an SMSF administration-only service provider will attempt to ensure that your fund complies with super laws but won’t give you any advice on how to invest its funds. You’ll need to seek professional investment advice from another service provider or make those investment decisions yourself (or with your fund’s fellow trustees).

On the other hand, if you choose an integrated service provider, the coordination of all SMSF activities should occur naturally. Integrated SMSF service providers usually offer set-up and ongoing administration/management services, as well as investment advice.

What services do they offer?

SMSF set-up services include:

• Working out the structure of the fund and its trustees. An SMSF can have two to four individual trustees who are members of the fund. Alternatively, it can be set up with a corporate (company) trustee, provided that the company has two to four directors who are also members of the fund.
• Creating a trust deed. An SMSF trust deed is a legal document that outlines how the fund will be established, how it will operate and how it will be administered.
• Applying for an Australian business number (ABN) and registering the SMSF with the ATO (so that it’s eligible for superannuation tax concessions).
• Creating an investment strategy. An SMSF is legally required to have a documented investment strategy that outlines how member funds will be invested.

Ongoing SMSF administration/management services include:

• Preparation and lodgement of SMSF financial reports and tax returns to ensure compliance with superannuation and taxation legislation
• Preparation of member statements
• An annual audit of the fund’s finances and its investment activities. SMSF auditors must be registered with the Australian Securities and Investment Commission (ASIC) and they have a legal obligation to report any SMSF non-compliance to the ATO.

Ongoing SMSF investment advice can include:

• Researching and providing investment recommendations that are consistent with the fund’s investment strategy and member goals
• Handling investment transactions on behalf of fund members.

What should I look for?

When choosing an SMSF service provider, you should look at their:

Qualifications

An SMSF service provider should be appropriately licensed. For example, investment advisers need to be licensed by ASIC, SMSF auditors need to be registered with ASIC, and accountants providing SMSF taxation advice should be appropriately qualified.

Track record

An SMSF service provider should have several years of experience in the sector and a long list of satisfied, current clients. They should be able to provide you with a list of client testimonials and referrals so that you can independently verify the quality of their services.

Location

SMSF service providers should be based in Australia so they are readily accessible.

Fees

Make sure you fully understand any provider’s fee structure before hiring their services. Check the fine print for any hidden fees. You should also be wary of being locked into lengthy service contracts.

If you use an investment adviser, they are legally required to provide you with a statement of advice (SOA) that fully discloses their fees. This SOA must also outline any commissions or benefits that they may receive if your SMSF invests in products they recommend. This information gives you an idea of how independent their advice is.

The SMSF service provider market is highly competitive. Take the time to research and compare different providers on all the above criteria before hiring any service specialists or an integrated service provider.

What are the red flags to watch out for?

SMSFs are a growing sector of the superannuation market. According to the latest statistics from the ATO, more than 1.1 million Australians are members of SMSFs. There are nearly 600,000 SMSFs in existence in Australia and the average asset value of each fund is $1.3 million (or $679,000 per member).

Because of this, SMSFs are a lucrative target market for service providers and their quality varies. To avoid receiving poor advice, unnecessary services or inferior investment products, it’s important to choose a reputable service provider.

Be wary of service providers who:

• Have little experience in the SMSF sector
• Have very few SMSF clients
• Don’t take the time to understand the needs and goals of you and your SMSF’s members
• Push only one type of investment, such as property. Diversification is the best way to spread risk in any investment portfolio, including an SMSF investment portfolio.

Avoid any providers who:

• Don’t have appropriate qualifications or licences to provide SMSF services.

The bottom line

There are many SMSF service providers in the market. The most appropriate for your circumstances will depend on your level of SMSF and investment knowledge, as well as the extent to which you want to outsource your legal superannuation and taxation obligations.

It’s best to seek professional advice to ensure your SMSF complies with the rules. The information contained in this article is general in nature.