Whilst Gordon Gekko’s perennial “greed is good” speech has proven to be an affective campaign towards this deadly sin, SMSF trustees should not be so easily blinded. Trustees need to be aware of their own common mistakes and ensure that they are not performing one of the seven deadly sins of Superannuation.
We’ve compiled a list to help SMSF trustees identify the biggest mistakes and oversights that can put your entire retirement strategy at risk. Hopefully you can learn from the sins of others and avoid derailing your retirement dreams.
1. Rules are rules
Sin: Not understanding the law. Some SMSF trustees view having their own superfund as being able to “do things their way” and run wild with this concept. However, the Australian Taxation Office is expected to increase their scrutiny of self-managed funds. Non-compliance laws are tough and the penalties are even tougher; and the ATO is not looking to back away from these regulations anytime soon.
Trustees need to be aware of how tax law applies to their fund, as well as the intricacies of the Superannuation Industry Supervision (SIS) Act and trust law. Making time to ensure that you educate yourself and keep track of current laws and regulations is a must in order to avoid this pitfall.
Penance: Pay for good advice. A professional and expert SMSF administration service provide should provide you will the latest information and any legislation changes. Additionally, they should be monitoring your fund and keeping on top of your contributions, drawings and investments.
2. Living in oblivion
Sin: Blatantly ignoring your obligations. By purposely ignoring the law and doing your own thing can cause a world of pain. Trustees have been known to overdraw on their SMSF bank account, mix up personal and super assets or lend money to members, which is unlawful in any case.
Penance: Get educated. A lack of basic knowledge may be an easy excuse, but trustees should know better by asking questions first, rather than later. Get active and stick to the rules. Invest in an informative super expert such as a broker, financial adviser or accountant; if they’re a real SMSF expert, they should be able to offer you comprehensive and ongoing education.
3. Documents should be read, not just opened
Sin: Not keeping on top of simple administrative tasks. SMSF specialists find that more often than not, trustees are simply not looking after the most basic affairs of their fund. Minutes are sent out for review and completion but all too often trustees continue to not read some or all of the documentation. Furthermore, these documents are often erroneously executed or never returned, resulting in a lot of wasted time from a specialist’s stand point. As in life more generally, don't sign anything you don't understand; as trustee you remain reponsible for your fund's compliance.
Penance: Make time for it. Sure, our lives are only getting busier than ever, but before one even thinks about setting up a self-managed fund, ask yourself whether you’re able to dedicate a certain amount of time from your busy schedule to the running and maintaining of a SMSF. If you already have a fund in place, then ensure that you do make time, regularly, in your busy life, to deal with super-related tasks.
Sin: Poor or outdated investment strategies. SMSF’s are legally required to have an articulated investment strategy that is reviewed regularly. However, many SMSF’s advisers are worried that many funds do not have a proper strategy in place with trustees often signing pro-forma strategies provided by their administrator with taking the time to tailor for their members' needs.
Penance: Consult an expert SMSF adviser. Find a SPAA accredited SMSF Specialist Advisor, like our Partner - Wealth Consultinhg, and get actively engaged with what is going on with your fund, the economic environment investment markets and investment markets. A place to start might be reading our Monthly Update and asking questions to further your understanding.
5. Know the market
Sin: Not being aware of market trends. Too many funds rely on poor or out-of-date market data, which results in poorly allocated investments. Trustees also find that they don’t have sufficient access to reliable tools, which further adds to a misconception of market viability and can cause your fund to fall behind instead of maximising it’s full investment potential.
Penance: Engage with a professional SMSF service provider; one that has an online investment administration that can provide current information. A vital tool that all SMSF’s need to jump on board with is online asset allocation monitorring tools that members can use to make sure their investment portfolio is consistent with their investment strategy to achieve their long-term goals. Our online investment platform is available from the "Portfolio Login" button on the right-hand menu.
6. Find an expert
Sin: Listening to Joe Bloggs instead of a qualified adviser. Many trustees rely on their friendly neighbour accountant/ friend/ relative/c olleague to advise them on their super needs when in fact they may be dangerously underqualified for this role.
Penance: Stop listening to the bar tender or the bloke at your local neighbour watch. Instead, invest in the time to tap into proper sources that really know what they are talking about. As previously mentioned, a properly accredited adviser, who can offer a reliable, in depth understanding to your fund will help immensely in the long run, like our firm provides.
7. Putting all your eggs in one basket
Sin: Borrowing to invest in real estate via your SMSF and nothing else. Be very careful when doing so, as all too often trustees are getting this wrong. Whilst it may be the hottest trend at the moment for SMSF investments, there is an emerging population of unlicensed property spruikers popping up, claiming they are the latest SMSF experts and are preying on those weak and uninformed trustees.
Penance: Take heed and resist the urge to buy up big. Borrowing in SMSF’s is an area of significant growth, but make sure you seek professional advice. The over-reliance on real estate as an investment class will likely lead to liquidity issues when paying benefits or winding up a fund. See also our separate article on SMSFs and Property Investments.
For further help on any of these issues if you’re already a trustee for your own fund, or whether to start a SMSF if you're thinking about it, please feel free to contact one of our expert accountants or our firm's SPAA SMSF Specialist Advisor Michael Rees-Evans on (02) 9299 7044.
Important note: this information is of a general nature and has been prepared without taking account of anyone’s financial situation, objectives or needs. Before making any investment decisions based on the contents you should obtain professional advice.