Self Managed Super: Are you ready to DIY?<Adviser’s Name>

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Disclaimer

RI Advice Group Pty Ltd, ABN 23 001 774 125, holds Australian Financial Services Licence Number 238429 and is licensed to provide financial product advice and deal in financial products such as: deposit and payment products, derivatives, life products, managed investment schemes including investor directed portfolio services, securities, superannuation, Retirement Savings Accounts.

The information provided in this seminar, including any tax information, is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial situation or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide. If you no longer want to receive this information please contact our office to opt out.

<Insert company name>, ABN <insert>, is a Corporate Authorised Representative of RI Advice Group Pty Ltd ABN 23 001 774 125, AFSL 238429

<Insert adviser name> is an Authorised Representative of RI Advice Group Pty Ltd ABN 23 001 774 125, AFSL 238429

Important Notice

• Introduces the basics of self-managed super

• Looks at advantages and disadvantages

• Helps you decide whether it suits you

• Where to go for more information

Today’s presentation

Why are you here?

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What is a Self Managed Super Fund (SMSF)?

• A super fund where up to four people can pool their super and take full control and responsibility for managing it as trustees.

• The sole purpose of the SMSF is to provide benefits to its members on their retirement.

• Regulated by the ATO.

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SMSFs are popular

Rapidly increasing number of Australians are taking full control…

• Fastest growing superannuation sector

• Over 500,000 SMSFs with more than 1 million members

• SMSFs have nearly a third (i.e. over $520 billion of the approximately $1.7 trillion)of all super savings

• Ten years ago, SMSFs represented only one-tenth (10%) of all superannuation money

• Predicted to grow to approximately $2.25 trillion by 2033*

Sources: Self-managed super funds: A statistical overview 2012-13, Australian Taxation Office.Dynamics of the Australian Superannuation System: The next 20 years, Deloitte

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SMSFs tend to suit

People who…

• Operate small family businesses

• Like to have hands-on control over investment decisions

• Have their super customised to play a key role in family wealth and estate planning

• Wish to invest in alterative assets

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Why so popular?

Two main advantages cited by SMSF trustees

• Control – choose when and where to invest, including shares, residential and commercial property, cash, term deposits etc. 

• Flexibility – you can make decisions as a result of changing market movements and options for retirement income streams and estate planning.

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Why so popular?

Other SMSF advantages

• Family first: inter-generational wealth accumulation and transfer - no legal time limit on how long SMSFs can last. 

• Fee savings: fee structure can deliver substantial savings compared to other retail super funds.

• Creditor protection: a member’s fund assets are normally protected from creditors in the event of bankruptcy.

• Tax concessions: such as ability to withdraw super lump sums tax free to members over 60 in most circumstances is a huge benefit during retirement.

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Why isn’t everyone doing it?

Valid reasons why SMSFs aren’t for everyone…

• Time burden: running a SMSF can be time-consuming for trustees

• Risk of penalties: non-compliance with legislation and rules can mean significant tax penalties and, in serious cases, prosecution of trustees

• Balancing act: ongoing costs to operate a SMSF, can be uneconomic for members with balances less than $200,000

• More responsibility: the ultimate legal responsibility rests with the individual trustees, not other professionals e.g. advisers, accountants

• No ‘captain’s calls’: if a trustee takes action outside of that agreed by all parties, they can be sued by the others

• For love, not money: trustees can’t be paid for running a SMSF, nor can they be an employee of another trustee (unless they’re family)

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About trustees

SMSFs can have…

• A maximum of four members

• Where every member is a trustee

• And no trustee can be an employee of another (unless they’re related)

• Trustees can’t be paid for their services

• Trustees can be companies as well as individuals

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About trustees

Trustees are responsible for designing, implementing and regularly reviewing an investment strategy that:

• Protects members’ retirement benefits

• Minimises the risk of irresponsible or incompetent investments

• Meets your stated SMSF investment objective

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What does it cost to run an SMSF?

Three types of cost

• Set up costs (one-off) – could be up to $2,000

• Operating expenses (ongoing)

– mostly mandatory and fixed

– approx. 1% of assets e.g. $5,000 for $500,000 fund

• Personal time costs (ongoing)

– how active do you want to be?

– average 3.7 hours per week managing SMSFs^

Note: Industry regards $200,000+ fund balance is the minimum to be cost-effectiveSource: Super reforms research: SMSF trustees quantitative findings, 2011, Colmar Brunton research, prepared for: Australian Taxation Office.

Common SMSF investments

Three most popular SMSF assets

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32%Direct

Australianshares

28%Cash

and term deposits

16%Direct

property

Source: Self-managed super funds: A statistical overview 2012-13, Australian Taxation Office.

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Investing in property

SMSFs can invest in real property:

• Commercial property: e.g. a factory, warehouse, business leased premises, doctors surgery

• Residential property or real estate: e.g. investment units and houses

The rules• Meets the 'sole purpose test' - only provides retirement benefits to members• Can’t be acquired from a related party of a member• Can’t be lived in by a fund member or any fund members' related parties• Can’t be rented by a fund member or any fund members' related parties• SMSFs can’t invest in the family home or holiday home for personal use• Can invest in investment properties – as long as property used for investment

purposes only

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Borrowing to invest

• Prior to 2007 there were very few opportunities for funds to borrow directly.

• Indirect borrowing via trusts or companies was possible but there were a number of risks and limitations.

• A geared investment in a superannuation fund can be achieved via a structure known as a ‘limited recourse borrowing arrangement’.

• A limited recourse borrowing arrangement can enable a fund to utilise borrowing to purchase a range of investments, including direct property.

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Borrowing to invest - Case Study

Sandra wishes to purchase a property which is currently valued at $500,000

• Her SMSF has significant investments but she wishes to use $200,000 in the SMSF to purchase the property.

• The property can be purchased by using a limited recourse loan.

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LRBA Structure - Case Study

Super Fund

Lender

Trust• Commercial Property

• Security

• Bank

• Institution

$300,000

$200,000

$500,000

Assets

$300,000

This will allow $200,000 for purchase and $100,000 for ongoing fund expenses and loan repayments.

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Borrowing to invest – who can benefit?

• Gearing investments via super including property and shares

• Those who have met the concessional and non-concessional contribution caps

• Younger members who wish to bring forward the purchase of investments via super

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SMSFs and insurance

• Trustees must consider members’ insurance in the investment strategy

• You can purchase insurance within your SMSF

• Allowed within SMSF

– Life insurance

– TPD insurance – ‘Any Occupation’ definition

– Standard Income Protection insurance policies

• Not allowed within SMSF

– TPD insurance – ‘Own Occupation’ definition

– Trauma cover

– Comprehensive income protection

Note: Complicated area where exceptions exist - explore your personal situation with a financial adviser

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A typical SMSF

What does an SMSF look like?

IncomeDividends

ContributionsRollovers

Fund BankAccount

Trust Deed/Trustees

Administration & tax Auditor

Members

The Fund’s Investments

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Advantages

• Tailored to suit you

• Investment flexibility

• More control

• Tax effective

• Intergenerational asset transfer

• Potential cost savings

Disadvantages

• Only for retirement income

• Formulate and implement an investment strategy

• Must have a trust deed and trustees

• Must comply with SIS rules

• Severe penalties for non-compliance rest solely with the trustees

SMSF pros and cons

Summary

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How we can help

We provide complete SMSF support on…

• Appropriate SMSF structure set up

• Specific investment strategies for all members

• Life insurance needs analysis for all members

• Maximise SMSF contribution cap strategies

• Oversee the ongoing management of your fund (with direct access to ANZ Self Managed Super account)

• Effectively transition to retirement

• Maximise Centrelink and other Government benefits

• Estate Planning and inter-generational support (where relevant)

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Your ‘all-in-one’ SMSF solution

Our SMSF Service Package

Investment Strategy

Investment Selection

Administration

Compliance

• Investment Advice

• Direct Share Advice

• Managed Funds

• Ongoing Investment and Strategic Advice – trustee and member level

• Trust deed & other document services

• 24/7 Administration Management Solution

• Audit

• Tax return preparation

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Questions

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What next?

• Make an appointment today

• Complete the feedback form if you’d like someone from our office to follow you up

• Go to our website <website.com.au>.

• Grab a guide/flyer before you leave

Thank you.