Many of the more than 40,000 business owners who have rushed to set up self-managed super funds over the last six months may not have the skills required to manage them properly, a leading superannuation expert says.
CPA Australia superannuation policy adviser Michael Davison says it is likely a significant minority of the more than 360,000 DIY super funds that now exist are not being managed properly.
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“You need a purpose to go into DIY super funds, but I think some have gone that way because it is trendy or they like the idea of control, and they are leaving funds with investments that don’t justify the costs involved, or they don’t put time into managing funds properly, and they could be doing just as well on a commercially available fund without the hassle,” Davison says.
A recent survey of 800 people with DIY super funds by the tax office lends some support to Davison view, finding that while 20% of DIY fund managers agreed they had only a low to medium understanding of their obligations in managing fund.
Even more worryingly, one third of that 20% could not give an adequate explanation of the sole purpose test – they fundamental principle that requires super fund investments to be for the sole purpose of providing a retirement income.
Question are also being raised about whether many of the accountants that provide advice on setting up DIY super funds have the skills and knowledge to do so properly.
Jonathon Bonnett, a director of specialist superannuation advisory firm De Vryer & Associates, says he believes that some accountants who are new to the area may be struggling, especially as new and more complex investment products hit the market.
“A lot of suburban accountants are probably ill equipped to deal with complexities of some of these structures,” Bonnett says. “It is an area that is getting more technical and specialised and most of the time it is a good idea to get specialist advice on both the accounting and financial planning side of things.”
Davison disagrees with Bonnett’s view, and makes the point that accountants are not able to give advice on whether a person should opt for DIY fund over a commercial fund unless they are also licensed as a financial planner.
“I think a lot of accountants are well skilled to work in this arena, DIY funds have been set up and run by accountants for many years,” Davison says. “Certainly, the evidence doesn’t support any suggestion that accountants are driving the increase in funds.”