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Investor Education > Self Managed Super Funds > Alternatives to SMSF

SMSF ALTERNATIVES

Running a self-managed super fund lets investors access a lot more investment options. An SMSF has a wide choice of investments for retirement money including shares, managed funds, property trusts, fixed interest, direct property and cash. The added benefit of transparency makes it easy to analyse which assets in a portfolio are performing and which ones are underperforming.

However on average, SMSFs have cash balances of around 20%-30%  of the fund’s assets. This means that investors are taking the opportunity to put their cash into their SMSF but when it comes to ‘do it yourself’ investing, these investors may be lacking the skills and time required to manage their DIY fund and execute their investment strategy.

Generally, SMSFs are not suitable for everyone. With the control comes a great deal of responsibility. SMSF trustees need to be aware of the super rules and make sure the fund operates within the rules. Investors need to be capable of making investment decisions and need to have the time to dedicate to operating and administering the fund properly.

Self-Managed Super versus a direct super wrap account
An alternative strategy that will give much of the flexibility of an SMSF but without the responsibility as the Trustee is a super wrap account. A super wrap account will generally provide a wide range of investment options without having to worry about trustee or administration responsibilities. This range of choice allows investors to construct a suitably diversified portfolio that includes access to many international markets – an area often overlooked by many SMSF funds. Though a wrap account won’t enable you to invest in direct property, it will provide access to wholesale and boutique managed funds, shares, term deposits and cash.

A super wrap becomes very advantageous when it comes to ongoing administration and compliance. Taxation on contributions and investment returns (income and capital gains) is managed by the Custodian/Trustee of the superannuation platform. Investors also have 24 hour online access to view their portfolio and run reports

Comparison of fees: DIY Super vs. Super wrap account
As the table below shows, a super wrap account may be a cost-effective alternative for investors who are interested getting increased control of their superannuation assets but don’t want to take on board the compliance and administration hassles of a SMSF.

The table compares the cost of ongoing administration only and excludes other costs associated with the operation of an SMSF. For more on SMSF fees please click here.  The example is based on the Personal Choice eWRAP Super, a super wrap account available from 2020 DIRECTINVEST without adviser fees.

COST COMPARISON

Fund balance SMSF - Specialist administration service^ Personal Choice eWRAP Super*
$250,000.00 $2,520.00 $1,762.62
$500,000.00 $2,760.00 $2,760.25
$750,000.00 $3,240.00 $3,687.25

Brokerage costs for shares and investment management fees for managed funds are likely to be similar in an SMSF and in Personal Choice eWRAP Super.

^Fees are based on the fee schedule 2020 DIRECTINVEST clients pay for Multiport's SMSF administration service, which includes a special discount. Please click here for Multiport's fee schedule.

*Assumes a 10% balance held in cash. No administration fees are charged on the cash account balance. Please click here for Personal Choice eWRAP Super's fee schedule.

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