David French | 18/02/2009 4:37:33 PM

Please note that this article was originally published in The Morning Bulletin in September 2005

Coincident with the introduction of Superannuation Choice, financial services regulator ASIC released guidelines for financial planners who recommend self managed superannuation funds (SMSF). Generally the paper is quite sensible, but we disagree with one aspect of it – the view that $200,000 is the minimum recommended investment required to run a SMSF.

While ASIC’s logic is generally sound, it seems that the pricing assumptions don’t apply to all financial planners, and certainly to people who undertake a lot of the administration themselves. Our experience is that for amounts of over about $120,000, a self managed superannuation fund is more cost efficient than a retail alternative. The overall cost depends on how much you do yourself, and the fees charged by the financial planner, accountant and fund manager. These fees need to be compared with fees associated with retail products including fund managers fees, WRAP fees, superannuation loadings and sometimes an advisor premium. The return also needs to be taken into account.

Fees aside, there are a number of significant advantages in using a self managed fund. One is that transition from accumulation phase to pension phase can be effected without crystallizing capital gains. Another is that trustees can accurately match investments with investment profile. This is extremely important – if the fund can generate income sufficient to cover pension payments in the early years, the life of the principal is markedly extended. This can be worth tens and even hundreds of thousands of dollars to the superannuant. Further, matching assets to a clients’ risk profile can be done better done using a combination of direct investments and managed funds as opposed to retail funds.

Finally, superannuation is often seen as a solution for all retirement needs. This is not so. Some people would be better off investing in their own names, or through a company or trust. Others, keen for Centrelink benefits, might not realise the disadvantages of locking money up in complying income streams, until it is too late.

The bottom line is that there are lots of ways to skin the retirement income cat. No solution fits everyone, and it is well worth talking to a decent financial planner.

The Investment Collective (AFSL 471728) is a non-aligned financial planning and investment firm specialising in providing tailored financial and investment advice for individuals and small business. Capricorn Investment Partners Limited's services include financial planning, share trading, portfolio management, insurance broking and self managed super fund administration. Additional information on services provided by The Investment Collective Limited can be found by following this link. Readers are reminded that this document has been prepared for general information purposes only, and any advice contained herein has been prepared without taking into account your financial objectives, situation or needs. Readers are advised to see their financial advisor prior to acting on any general advice.

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