.... a trustee of a self-managed super fund manages every last detail of a fund’s investment and administration. The reality is that there is generally a team of professionals involved with the proper management of an SMSF.

The trustee's role is typically one of managing those professional relationships - whether it be accountants for the fund's setup, accounting and tax management, the lawyers for legal advice and the financial advisers for investment strategy.

Then there will be auditors and even actuaries involved in certifying a fund's accounts and compliance with superannuation laws.

There is no doubt some trustees will be greater or lessor uses of services - for example an accountant or financial planner running their personal funds - but the reality is a key responsibility of the trustees is getting the right professional advice and service to ensure a fund is and remains complying.

ASIC recently released a report into the quality of advice in the SMSF sector - available for download from the ASIC website - and while its main focus is on the quality of advice being provided with practical suggestions to advisers on how they could raise standards it also provides good context to trustees on what to look for and expect from their advisers.

The ASIC study deliberately looked for cases where they expected to find a high risk for SMSF members. A key objective of the project was to understand how well the professional gatekeepers were doing their job of ensuring only investors suitable were being advised to setup an SMSF.

ASIC reviewed over 100 investor files and most had a fund balance of $150,000 or less and included some, or all, of the following features:

• older members (i.e. members at, or close to, retirement age)
• members with a low income
• borrowing
• investment in a single asset class (e.g. real property).

The good news was most of the advice was judged to be adequate, with one area of concern being the increasing advice around setting up an SMSF to borrow and buy property.

Other issues ASIC identified through the study were that in nearly half of the files reviewed, investors were not told that:

• the trustee is required to put in place, document, and regularly review the fund's investment strategy;
• trustees are responsible for the fund even when they outsource functions;
• managing an SMSF takes more time and skill than participating in an APRA-regulated superannuation fund; and
• restrictions apply to SMSF investments.

The growth of SMSFs continues to be strong. But while there are advantages to running a SMSF there are also clear disadvantages and risks and for most people a large institutional super fund will be the more practical and rewarding solution.

For trustees of SMSFs or people considering setting one up, the ASIC report highlights the risks and responsibilities but also reinforces a key challenge for any SMSF trustee.

These funds may offer investment flexibility but that advantage will quickly evaporate if costs are too high or poor investment decisions are made.

By Robin Bowerman
Smart Investing
Principal & Head of Retail, Vanguard Investments Australia
26th  April 2013