For many Australians, the decision to establish a Self-Managed Super Fund (SMSF) is driven by a desire for greater control over their investments. While an SMSF can provide significant flexibility, it is not the only option available.
In fact, there is a lesser-known alternative that sits between a traditional retail super fund and an SMSF, offering greater investment choice and transparency without the responsibilities that come with being a trustee of your own fund.
Understanding the two ends of the spectrum
At one end of the spectrum is a traditional retail superannuation fund. These arrangements are typically low cost and straightforward, with members investing alongside thousands of other investors in pooled funds. Investment choices are often limited to options such as MySuper, lifecycle strategies or diversified portfolios with varying levels of risk.
For many people, these solutions work well. However, investors seeking greater control can find the investment menu restrictive and may have limited visibility over the underlying holdings within the fund.
At the other end of the spectrum sits the SMSF.
An SMSF provides complete control over investment decisions, allowing members to select and manage their own investments. This flexibility can be attractive, particularly for individuals who want access to a broader range of assets or who can benefit from more sophisticated superannuation strategies.
An SMSF can also be beneficial for larger balances, often in excess of $1 million, where members may wish to run accumulation and pension accounts simultaneously or implement more tailored investment strategies. Superannuation assets can be pooled with a spouse and/or others.
However, greater control comes with greater responsibility. SMSF trustees are responsible for complying with superannuation legislation, maintaining records, preparing financial statements, arranging audits and ensuring the fund continues to meet its regulatory obligations.
The alternative: Individual superannuation wrap account
What many investors do not realise is that there is an option that bridges the gap between these two approaches. Financial advisers have access to wrap investment accounts that are held within the superannuation system.
Individual super wrap solutions allow each member to have their own account and own portfolio, rather than being part of a pooled fund. This provides significantly greater investment flexibility than a traditional retail fund while removing the need to establish and operate an SMSF.
Unlike pooled investment options, investors can often see exactly what they own and tailor their portfolio to suit their personal objectives and circumstances.
There can also be tax advantages. Franking credits generated from Australian shares are attributed directly to the member’s account. These credits can help offset tax in accumulation phase or, for members in pension phase, may be refunded.
Why active investing matters now
Current and future investment markets are more complex and volatile than ever. Passive investing – simply tracking the market, may not be enough to protect and grow your wealth in uncertain times. Active investing, where professionals or you make deliberate choices based on research and market trends, can help capture opportunities and manage risks as markets shift.
Individual super wrap solutions can allow you to take a more active approach, with adviser support. This flexibility means you’re not just riding the market’s ups and downs; you’re positioned to respond to change and make the most of new opportunities.
The best of both worlds?
For investors seeking greater control without the administrative burden, individual super wrap solutions can offer an attractive middle ground.
While they require the support of a financial adviser which comes with an additional cost rather than a simple retail super option, they often avoid the establishment costs, ongoing administration requirements and trustee obligations associated with an SMSF.
For many investors, the question should not be “Do I need an SMSF?” but rather “What level of control and flexibility do I actually need?”
The answer may be that you can gain much of the flexibility and transparency you are looking for without taking on the responsibilities that come with running your own super fund.
If you have any question or would like to discuss your personal situation, please reach out.
Lindzi Caputo is an adviser of HLB Mann Judd Wealth Management (NSW) Pty Ltd (AFSL 526052). This content contains general advice which does not consider your particular circumstances.
You should seek advice from HLB Mann Judd Wealth Management (NSW) who can consider if the strategies and products are right for you. Information based on historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.