Six Dos and Don'ts when setting up a client's SMSF

Self-managed super funds (SMSFs) are the flavour of the month but it’s important not to just “jump on the bandwagon”, says Jenny Brown of JBS Financial Strategists.

“Make sure you're on top of all your SMSF training and education. You should also become a member of an SMSF professional association, and you need to regularly attend professional development days,” advises Brown, who has specialised in setting up and advising SMSFs for 17 years.

Here are six important Dos and Don'ts when it comes to lining up your client with SMSF solutions.

1. DO work out if a SMSF is right for your client

Before you even start looking at suitable SMSF solutions for your client, check whether it's in their best interests, says Brown.

“Don't set up a fund with $50,000 in it if they'll have ongoing costs of $2,000 or $3,000. It will only eat away at the balance,” she says.

“But if you've got somebody who really wants to buy a business property and has enough to do so, then an SMSF is generally the only way to go within the super environment.”

2. DO look at using ETFs

For many clients, the ability to choose their own shares is often a driver for setting up an SMSF. But, as ASIC warns, unless they have a lot of money to invest it's unlikely their portfolio will be as diversified as a fund manager can achieve.

That is, unless they use Exchange Traded Funds (ETFs), adds Brown.

“The advent of ETFs has provided a lower cost version of what a managed fund historically has done,” says Brown.

“So you can pick up an indexed ETF for quite a low cost and then you can build a portfolio around it.”

3. DO use software and platforms that you and your client are comfortable with

Software and platforms that provide real time feeds make both your life and your clients’ lives easier, says Brown. There's no shortage of options available; it's about finding what works best for you.

Then there’s financial planning software such as XPLAN and Midwinter where an adviser can effectively create a wrap platform.

“You’ve got to make sure the software or platform has good reporting, that the accuracy of the data is there, and that it has all the functionality you need,” she says.

4. DON'T rent out SMSF properties to family members

There are a number compliance regulation boxes your client must tick when purchasing property through an SMSF, warns Brown.

“They can't put their holiday house or Swiss chalet in an SMSF. If they're going to have an investment property within the SMSF, it needs to be rented out on commercial terms,” she says.

“And you need to make sure that it's at arm’s length. They can't have their son, daughter, cousin, or anyone like that renting the property.”

5. DON'T ignore the fundamentals of a well-balanced portfolio

Striking the right balance for your client's SMSF portfolio comes back to “investing 101 for financial advisers”, says Brown.

“It's all about the client's risk tolerance. If the client is conservative in nature they're going to potentially want more cash and fixed income style investments,” she explains.

“If they're after growth and happy to ride out volatility, then they'll probably be happy with direct shares or direct property.”

“You've also got to look at making sure you don't allocate too large a portion of your client's portfolio in lumpy assets,” Brown adds.

“If they've got $500,000 in a SMSF, but $450,000 of that is in one property, how are they going to meet the operating costs of the fund and pay pensions when they fall due?” says Brown.

6. DON'T fail to educate your client

Financial advisers do a great job at helping their clients understand the constantly shifting SMSF rules and regulations so it’s important your clients understand the value of working with you as their trusted professional.

It's equally vital to make sure your client understands the importance of their super.

“Some clients can't manage their own money. So, you need to be really careful with making sure the client understands that yes, it's superannuation, and yes, ultimately it belongs to them, but it's for retirement purposes,” Brown says.

With that in mind, make sure you're continually supplying your client with informative SMSF education material, or pointing them to the free training program recommended by ASIC on the MoneySmart website.

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Important: This article has been prepared without taking account of the objectives, financial or taxation situation or needs of any particular individual. Before acting on the information, you should consider its appropriateness to your circumstances and if necessary, seek appropriate professional advice. Any information used in this article is for illustrative purposes only. JBS Financial Strategists is an external entity that is not a member of the Commonwealth Bank of Australia Group of Companies (the Group) and the content or any view expressed by JBS Financial Strategists and its employees does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. CBA, nor members of the Group accept any liability for losses or damage arising from any reliance on external parties their products, services and material.