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Self Managed Super Fund (SMSF) Article
Is the Self Managed Super Fund name suitable?
By Tony Negline.
This article may be out of date.
11th August 2004
Any marketer will tell you that a product’s name has to be simple and use as few syllables as possible. A complicated product name are said to confuse potential buyers.
Marketers also stress the need to keep your product material as short and simple as possible. The theory goes that dense material might bewilder a client who might be less likely to purchase.
Within many fund manager firms there is a constant battle between the marketers wanting simplicity in product materials and lawyers and other compliance staff looking to satisfy relevant legal requirements.
Most financial service marketers have given up on really simple product documents because government regulation has mandated inordinately long brochures. Financial planning documents can run into the hundreds of pages for the same reason.
The lawyers would argue that it is better to give lots of information so that a client could not possibly claim they were not ‘fully informed’.
The industry knows hardly anyone (probably no one) reads these publications.
There are three popular names for small funds – ‘Do it Yourself (or DIY) Super Funds’, ‘Self-Managed Super Funds’ and ‘Mum & Dad Funds’.
Earlier this year the Australian Taxation Office’s Deputy Commissioner for Superannuation, Mark Jackson, told a gathering of accountants that the term DIY Super Fund is not good enough.
“I would stress that SMSFs are not for everyone … a degree of time, money and expertise is required to successfully manage this type of fund.
“There are an increasing number of stories in the media where those identified as ‘superannuation professionals’ tend to downplay this point.
“The term ‘do-it-yourself super’ doesn’t help. It conjures up the image of a product you can buy ‘off-the-shelf’, follow the directions on the back of the pack and a well-funded retirement is yours.
“I think we all know that this is not the case. We see enough examples of non-compliance to suggest that a lot more care, understanding of responsibilities and attention to detail is required, than some trustees seem to appreciate.
“Most significantly, full regulatory compliance does not ensure that a self-managed fund will be a profitable exercise.”
Mr Jackson has a point about ‘DIY Super’. But the same comments can be said about the term ‘Self Managed Super Fund’. This term was created by the government in 1998.
Both ‘DIY Fund’ and ‘Self Managed Super Fund’ imply that the people running a fund can do everything that the fund needs themselves. This is not true. All trustees must appoint an auditor. If a SMSF is paying a term or lifetime pension then they must also appoint an actuary.
Most trustees will also need to have access to a tax agent to prepare their accounts and tax return. The ATO recently told said that only around 1.1% of SMSFs – about 3,000 funds – do not use a tax agent. A lawyer is required to issue a trust deed which the fund can use and may also be needed to interpret it and the various super and tax laws.
Most SMSF trustees also use an administrator to record their transactions and to fill out various forms and notices.
Finally a trustee might need to appoint a professional valuer.
Every super fund, other than SMSFs, must value their assets at market value. In April 2003 the ATO issued a Circular (2003/1 – Valuation of Assets) which clearly states that the ATO “intends that Self Managed Super Funds should use market values for all valuation purposes.”
But how does a trustee determine market value? The Superannuation Industry (Supervision) Act 1993 defined market value to be “the amount that a willing buyer of an asset could reasonably be expected to pay to acquire the asset from a willing seller if the following assumptions were made:
- that the buyer and the seller dealt with each other at arm's length in relation to the sale
- that the sale occurred after proper marketing of the asset
- that the buyer and the seller acted knowledgeably and prudentially in relation to the sale".
The ATO Circular notes that the determination of the market valuation can be conducted by “either a qualified valuer or a person without formal qualifications which includes the trustees of the fund … the person who conducts the valuation must base their valuation on reasonably objective and supportable data … a qualified valuer should be considered where the value of the asset represents a significant proportion of the fund's value or where the nature of the asset indicates that the valuation is likely to be complex or difficult.”
So what would be a more suitable name for SMSFs? “Small Funds Where Members Are Trustees” might fit the bill and be descriptive enough. But SFWMAT doesn’t exactly roll off the tongue does it?
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