Self-managed super fund (SMSF) trustees often believe they have good reason to mistrust professional financial advice but perhaps some pointers on dealing with these sorts of clients can be gleaned from reality television.

SMSFs are often referred to as do-it-yourself super funds and while this may be a clever catch phrase for a nation addicted to any concept that aims to save a few bucks, it makes me shudder to think about all that can go wrong when those who have never before worked on the tools suddenly feel inclined to pick up a power saw.

Be prepared                                              

When it comes to DIY super funds, there needs to be a stronger emphasis on the Y – as in why go it alone? There are a lot of great reasons for establishing an SMSF, but as far as doing it yourself is concerned, that’s a whole other matter.

Planning, establishing and managing an SMSF is a long-term commitment. It requires careful consideration including clear intentions for actually wanting to take on the considerable task and legal obligations of being responsible for turning your lifesavings, and those of other fund members, into the nest egg you are all hoping to spend in your retirement. Get it wrong and the impact you have on your life savings and those of others, metaphorically speaking, could be akin to losing a few fingers.

Reality, not reality TV

If you were a DIY home renovator with a lot of money at stake you’d be working out how much you are prepared to back yourself and which jobs need the skills of a qualified specialist to deliver the home of your dreams. For example, it’s best to leave the electrical wiring to a licensed operator.

Just like the home renovation shows on television, SMSFs are currently attracting huge audiences. According to the Australian Tax Office March 2013 quarter statistics, there are over 500,000 funds operating in Australia. However, setting up a strategy to fund your retirement should be based on much more than jumping on board a popular trend.

Cleaning up after yourself

Some consider an SMSF as an opportunity to swap the passenger seat for the driver’s seat, with a view of finally taking control of their financial future. Self-determination can initially feel empowering but without adequate skills and sufficient knowledge, the DIY SMSF can quickly land its owner in hot water.

Needless to say, going it alone also precludes you from any support from the Superannuation Complaints Tribunal. Without a conciliator in your corner, clients need to understand they’ll be 100-per-cent responsible for dealing with any contentious issues that may crop up. Imagine a painter without a drop sheet – as an SMSF trustee, you’ll be cleaning up your own mess.

Bumpy landing

When it comes to home renovators, people roll up their sleeves and opt for DIY because they don’t want to pay what they deem to be expensive builders’ fees. Similarly, SMSFs can appear to be a cheaper alternative to a public offer or retail fund, because as an SMSF a lot of the costs are fixed, as opposed to percentage-based, meaning that fewer dollars are spent as an overall percentage. A lot of the assets can be held directly and are not subject to ongoing administration fees.

Don’t get me wrong, I do think SMSFs can be a good fit for those clients who accept they don’t know what they don’t know and are prepared to seek advice.  Those with prior investment experience and the know-how to diversify their portfolios and manage risks can be well suited. Without this kind of financial acumen, there may be a bumpy landing without the safety net of an experienced adviser.

Lining up the tools

Convincing clients to adopt a collaborative approach to their SMSFs allows for a tailor-made investment strategy that takes into account current circumstances as well as future goals and aspirations. Combining the rigor of a committed trustee (who has the time to remain fully engaged in the process) with the straight talk and guidance of a team of professionals asking timely and pertinent questions can potentially make for a more effective and flexible fund.

As is the case with all successful do-it-yourselfers, it’s knowing when to call in the experts and having the right tools in your belt.

Gareth Colgan is an SMSF specialist with Sidney Lloyd Financial Advisers

Join the discussion