Several of these make sense and should already be part of a discussion with the client at the establishment phase.

However, the current proposals ignore the fact that there is no zero-risk choice when it comes to superannuation. The regulator’s one-eyed focus on SMSFs has been fuelled by considerable media coverage, which has not always been balanced.

SMSFs certainly create additional risks that members of retail or industry funds could avoid.  However, they also mitigate others. A genuinely helpful discussion with clients will highlight both and allow clients to make an educated choice about which factors matter most to them.

Just as there should be special flags about new risks or requirements by moving to a SMSF, there should also be equivalent warnings about moving the other way.

Duties and obligations associated with running an SMSF

With SMSFs, trustees can outsource virtually all the administration work but are ultimately responsible for everything the fund does. Service providers do what they do in the trustees’ names.

Trustees must make sure that the funds comply with all the laws, lodge returns on time, only ever do things that are in the best interests of members and always focus on the fact that the sole purpose of the fund has to be about saving for retirement.

Does the financial planning industry deserve the negative coverage it gets in the media?

Yes18.18%No54.55%Sometimes27.27%

They are responsible even if there are other people who are also trustees and who are more actively involved in the day-to-day running of the fund. There is no such thing as a “silent partner” with SMSFs. Everyone is equally responsible and therefore liable.

On the other hand, members of industry, retail, corporate or government funds don’t have to think about how funds are run. Trustees will make sure the funds comply with all the rules.

Of course, that also means they get to make all the decisions.

While trustees of funds have to act in the best interests of members, that doesn’t mean their decisions will be best for members or their families all the time. For example, if a member dies and hasn’t left specific, legally binding instructions on how superannuation is to be paid, most large funds will undertake extensive (and sometimes intrusive and time-consuming) research on the meber’s family situation before deciding who should receive the benefit.

This will happen even if a member’s spouse, children and everyone else in the family wants the benefit to go to the spouse. The research is in the best interests of all the other members (it protects the trustee against a lawsuit for paying the money to the wrong person), but the layers of bureaucracy don’t help families get their money quickly.

If members want trustees to focus exclusively on them and their family groups, they should probably have SMSFs.

11/10/2013
Meg Heffron
Source:  Professional Planner    www.professionalplanner.com.au