At Teach Me About Property, we’ve spent some time going through the reasons why people choose to invest in property through their self-managed super funds (SMSFs), but now it’s time to tackle the how. Understanding the process is crucial if you’re considering setting up an SMSF for you and your family. So, let’s break down the three main approaches you can take.
1. The DIY Route: Doing It Yourself
The first option for setting up an SMSF is the DIY route. As the name suggests, this involves doing everything on your own—from setting up the fund to managing the compliance and investment decisions.
Who Is It For?
The DIY approach is ideal for individuals who are sophisticated investors and have a deep understanding of superannuation and financial management. If you’re comfortable taking full responsibility for the setup and ongoing management of your SMSF, this could be the right choice for you. However, if you’re unsure about your capability to handle the complexities, this might not be the best route.
Costs Involved
The primary advantage of the DIY route is cost savings. You’re likely to spend anywhere from $1,000 to $2,000, depending on the services and software you use. However, while the upfront costs are lower, you must be prepared to dedicate significant time and effort to learning the ins and outs of SMSF management.
Challenges
The main downside is that you’re on your own. There’s no one to guide you through the process, and any mistakes you make could be costly. Missteps in compliance or investment decisions could result in penalties or financial losses that far outweigh the initial savings.
Key Consideration: If you’re thinking, “Am I a sophisticated investor?” and you’re unsure, the DIY route may not be for you. The DIY path is best suited for those with extensive knowledge and experience in managing financial investments and superannuation.
2. The General Advice Route
The second option is to seek general advice from a professional service provider. In this scenario, you would work with a company that specialises in setting up SMSFs, guiding you through the process, and handling much of the paperwork and compliance.
Who Is It For?
This option is suitable for most people. It’s beneficial if you have a good grasp of SMSFs but prefer some assistance so everything is done right. The service provider will help set up the necessary structures, such as establishing the SMSF, rolling over existing super balances, and preparing for property purchases.
Costs Involved
Costs for this option typically range between $4,000 and $7,000. This includes setting up the fund, creating multiple entities as required, and ongoing support during the setup process. The exact cost can vary depending on the complexity of your situation and the level of service provided.
Benefits
The general advice route offers a balanced approach—more support than DIY but without the higher costs. The service provider will take care of the heavy lifting, ensuring that your SMSF is set up correctly. Additionally, they’ll ensure it is done in compliance with relevant laws and regulations.
Key Consideration: This route is ideal for most people who want a combination of professional guidance and cost-effectiveness. It offers a middle ground where you’re not completely on your own, but you’re also not paying for extensive, personalized financial advice.
3. The Specialized Advice Route: Personal Advice from a Financial Planner
The third option is to receive personalized advice from a financial planner. This is the most comprehensive approach. It involves a detailed review of your entire financial situation, followed by a Statement of Advice (SOA) tailored specifically to your needs.
Who Is It For?
This route is best suited for individuals with complex financial situations or those who require more detailed, personalized advice. If your SMSF will involve multiple trustees (up to six), complex investment strategies, or significant retirement planning considerations, specialised advice is the way to go.
Costs Involved
Expect to pay upwards of $5,000, with costs increasing depending on the complexity of your situation and the number of trustees involved. Each trustee will need their own SOA, which adds to the overall cost. However, this investment can be well worth it, given the level of detailed advice and peace of mind you’ll receive.
Benefits
Primarily, you ensure that your SMSF is well set up and optimised to your specific financial goals. The advice you receive will cover not just the SMSF setup, but your broader financial picture, providing a holistic approach to your wealth management.
Key Consideration: This is the best route for those with more complex financial needs. Those who want comprehensive, tailored advice should follow this option for long-term success.
Choosing the Right Option for You
So, those are the three main routes to setting up an SMSF: DIY, general advice, and specialized personal advice. Each option has its own set of advantages and challenges, and the right choice will depend on your financial situation, level of expertise, and how much support you need.
Remember, it’s not always about saving the most money upfront. Sometimes, investing in professional advice can save you significant time, stress, and potential costs down the line. Choose wisely, and ensure that whichever path you take aligns with your financial goals and capabilities.
