AUSTRALIA currently has more than 230,000 do-it-yourself superannuation funds and the number is growing by about 18,000 each year.What is the attraction of this rapidly growing sector and how appropriate is DIY super for most investors?
AUSTRALIA currently has more than 230,000 do-it-yourself superannuation funds and the number is growing by about 18,000 each year.
What is the attraction of this rapidly growing sector and how appropriate is DIY super for most investors?
Answering the first part of this question is relatively easy.
Perpetual Private Clients’ Steve Davis believes the main attractions of DIY funds are the direct control over how superannuation money is invested and the enormous flexibility (see next page).
Answering the second part of the question is more problematic.
The answer partly depends on the investment skills of each fund’s members/ trustees (and their investment advisers).
It also depends on their ability to cost-effectively administer the fund and manage the regulatory mine-field surrounding superannuation.
Ravi Subramaniam, managing director of administration and compliance firm Australian Superannuation & Compliance Ltd (ASC), believes that running DIY funds is constantly getting more complex.
“Our workload per fund has gone up three-fold since 1995,” Mr Subramaniam said.
Most DIY funds outsource some of the administration, usually to an accountant, to ease the time-consuming hassle associated with day-to-day running of the fund.
Some funds also outsource the compliance function. If a super fund is found to be non-compliant, then penalty taxes and substantial fines can be imposed on the trustees.
The Australian Tax Office, which assumed responsibility for self-managed super funds in 1999 (see below), has not declared any fund non-complying and a spokesman said it was still in an “educative” role.
However, Mr Subramaniam expects that, once this phase is completed, the tax office may adopt a stricter approach to administration and compliance.
DIY fund members wanting to minimise legal risks can appoint a specialist service provider like ASC.
It handles everything from ensuring that transactions are compliant (with both the regulations and each fund’s trust deed) to settling transactions, lodging BAS returns, liaising with aud-itors and informing trustees of all relevant legislative changes.
Another option is to appoint an Approved Trustee, such as Perpetual or Tower Trust, to be trustee of the fund.
Of course, this involves some additional costs. Having an approved trustee also imposes some restrictions on the investment flexibility of the fund.
Mr Subramaniam said the “grandfathering” of old regulations and the phasing in of new rules made it especially difficult for fund members to stay abreast of all their legal obligations.
Areas that require careful attention include the purchase of property and other investments to ensure they do not breach the sole purpose test, in-house asset rules and arm’s-length arrangements.
Another area is the writing of options over ASX-listed securities in a DIY fund, which is only possible if the fund has a formal risk management strategy.
Many funds also do not realise that formal valuations of properties are required every three years, Mr Subramaniam said.
What is the attraction of this rapidly growing sector and how appropriate is DIY super for most investors?
Answering the first part of this question is relatively easy.
Perpetual Private Clients’ Steve Davis believes the main attractions of DIY funds are the direct control over how superannuation money is invested and the enormous flexibility (see next page).
Answering the second part of the question is more problematic.
The answer partly depends on the investment skills of each fund’s members/ trustees (and their investment advisers).
It also depends on their ability to cost-effectively administer the fund and manage the regulatory mine-field surrounding superannuation.
Ravi Subramaniam, managing director of administration and compliance firm Australian Superannuation & Compliance Ltd (ASC), believes that running DIY funds is constantly getting more complex.
“Our workload per fund has gone up three-fold since 1995,” Mr Subramaniam said.
Most DIY funds outsource some of the administration, usually to an accountant, to ease the time-consuming hassle associated with day-to-day running of the fund.
Some funds also outsource the compliance function. If a super fund is found to be non-compliant, then penalty taxes and substantial fines can be imposed on the trustees.
The Australian Tax Office, which assumed responsibility for self-managed super funds in 1999 (see below), has not declared any fund non-complying and a spokesman said it was still in an “educative” role.
However, Mr Subramaniam expects that, once this phase is completed, the tax office may adopt a stricter approach to administration and compliance.
DIY fund members wanting to minimise legal risks can appoint a specialist service provider like ASC.
It handles everything from ensuring that transactions are compliant (with both the regulations and each fund’s trust deed) to settling transactions, lodging BAS returns, liaising with aud-itors and informing trustees of all relevant legislative changes.
Another option is to appoint an Approved Trustee, such as Perpetual or Tower Trust, to be trustee of the fund.
Of course, this involves some additional costs. Having an approved trustee also imposes some restrictions on the investment flexibility of the fund.
Mr Subramaniam said the “grandfathering” of old regulations and the phasing in of new rules made it especially difficult for fund members to stay abreast of all their legal obligations.
Areas that require careful attention include the purchase of property and other investments to ensure they do not breach the sole purpose test, in-house asset rules and arm’s-length arrangements.
Another area is the writing of options over ASX-listed securities in a DIY fund, which is only possible if the fund has a formal risk management strategy.
Many funds also do not realise that formal valuations of properties are required every three years, Mr Subramaniam said.
