SMSFs vs. Other Funds

Jun 14, 2023

SMSFs vs. Other Funds

When it comes to superannuation, there are a variety of options available. But which is right for you? That depends on your individual circumstances and goals. It’s important to understand the differences between industry funds, retail funds and Self Managed Super Funds (SMSFs).

Industry funds are provided by employers or industry organisations and typically offer lower fees, no commissions and tailored financial advice. They can also offer access to additional services such as default death and disability insurance.

However, you have less control over your investments, which could be a downside for some people. Because of the way they are set up and their low cost, industry funds have carved out a large amount of super environment. Industry super often has a lower average balance than the retail and SMSF counterparts. Industry super is usually easy to set up, has no frills and is easy to manage ongoing.

Unfortunately though, when dealing with larger balances Industry super often stack up less favorably because a lot of retail funds and SMSFs have capped fees and are invested differently with can reduce costs dramatically.

Retail funds are usually managed by private providers and may offer more complex investment options than industry funds. Fees can be higher but they often provide access to a wider range of investments such as shares, international assets and property. Furthermore, you have more control over your investments with retail funds compared to an industry fund. The reporting and administration in Retail funds are usually more comprehensive because they are providing a more tailored solution.

The problem with Retail funds is that if the investor does not have the skills or knowledge regarding their investment structures or is not utilising professional advice, the outcomes can begin to deviate over time. Retail funds also capture the self-funded retiree market because of the combination they provide between security and flexibility and being able to craft a bespoke solution for their retirement.

Self Managed Super Funds (SMSFs) give you the most control over your superannuation. But they also carry a range of obligations including compliance, tax and financial reporting that you must be aware of before deciding to go down this route. SMSFs can provide access to the widest range of investments within super but fees can be higher than industry or retail fund options. SMSFs can invest in assets that remain out of reach to Retail and Industry funds, for example:

  • Real property
  • Alternative assets like whiskey, art, cars and gold
  • Leverage through limited recourse borrowing

A lot of recommendations online say that you should have more than $250,000 in super before setting up an SMSF. This kind of blanket recommendation is because of a couple of different reasons.

  1. Cost of setup and ongoing management: The cost of setup is high and ongoing costs are dependent on who is managing the process, however, the costs are often capped which can mean that high balances can be cheaper to administer in an SMSF than in an Industry fund.
  2. Cash flow and diversification of alternative assets: If you have $250,000 in super and want to buy a property then the property is going to represent an enormous % of the balance of the fund which makes the risk factors highly elevated. A higher balance can provide more ability to diversify investments.

Ultimately, only you and your professional advisers can decide which superannuation option is right for your individual circumstances – but by understanding the key differences between industry funds, retail funds and Self Managed Super Funds (SMSFs), you will be better placed to make an informed decision.

So how do you know what kind of super is right for you?

Typically finding the right kind of super for you is going to be determined largely by your balance and your investment needs/preferences.

Consider your level of comfort with investments and the amount of control you want to have over your super. Do some research into each option and seek professional advice before making any decisions. Ultimately, finding the best superannuation option for you will depend on your individual needs and goals.

One of our bread and butter services is helping our clients find the right kind of super for their needs. If you would like some professional support, the first step is to book a 20 minute discovery meeting here.

 

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