Nick Bruining Q+A: Got under $900,000 in a SMSF? It may be time to pull the plug and shift to a low-cost fund

Question

I have a self-managed superannuation fund which costs me about $5500 a year in accounting and auditor fees.

When I ask my accountant certain questions, he says he is not able to answer them because it is a financial advice query.

I’m finding this extremely frustrating because it is going to cost me another $5000 a year to see a financial planner.

Why can’t I pay a flat fee, in a similar way to when I visit a solicitor?

Answer

You have been caught in the confusing and very expensive world of financial advice regulation.

Following a number of investigations — including the Hayne Royal Commission into financial services — the Federal Government has imposed strict regulatory requirements on people providing financial advice. Only qualified, licensed individuals can provide financial advice and, unfortunately, this group no longer includes accountants and others.

Licensed advisers have strict and specific legal requirements that must be satisfied before they can provide any personal financial advice to consumers. This includes detailed fact-finding and the provision of detailed written recommendations, with mandated disclosures.

Sadly, whether the consumer wants it or not, these requirements must be met. Other professions such as doctors and solicitors don’t have the same legal obligations.

There are accountants who are appropriately licensed to provide financial advice in addition to providing accounting services, so one option may be to change accountants. Nonetheless, it may be time to critically consider the overall viability of the SMSF.

In my view, the only real benefit of operating an SMSF is for direct property investment. While SMSFs are frequently suggested by some accountants — often with a vested interest in their continued use — you should consider alternate lower-cost arrangements.

There are public offer funds which operate in a similar way to an SMSF where you can individually select the investments, including direct Australian and international shares, term deposits and managed investment funds, if that’s what you actually want to do.

Many former SMSF investors actually prefer the simplicity. The superannuation regulatory and compliance burden is borne by the fund itself, not you.

Some funds operate for fees as low as 0.6 per cent a year all-up and you can ask the super fund basic questions about superannuation rules and regulations.

At 0.6 per cent, your total invested funds in the SMSF would need to exceed about $900,000 to match the costs you are paying.

Question

I have an overdraft and will shortly become the recipient of an inheritance.

My plan is to use that to immediately pay off my overdraft. Would this reduce the impact of the inheritance on my aged pension?

Answer

There are a number of factors that will determine the impact of the inheritance on your pension.

We will have to assume that either as a single or a couple, neither of you are employed and have no investment properties.

While the receipt of the inheritance is not regarded as income, it will increase your assessable financial assets and be captured by both the asset and the income means test under the deeming system.

Under the deeming system — and if single — if the total of your financial assets exceed $289,000 your pension may be slightly affected by the income test.

The asset test is likely to have the greatest effect. If you immediately re-pay the overdraft, the remaining amount will be assessed.

If you are a home-owning single and your total assets after the inheritance exceed $314,000, your pension will be affected by the asset test and reduced by $3 for each $1000 over this limit. If you are a member of a couple and homeowners, the limit is a combined $470,000.

For both singles and couples, these limits are increased by $252,000 if you are non-homeowners.

You will need to notify Centrelink of the changes to your finances within 14 days of receiving the inheritance. The easiest way is to do this is online via the myGov portal.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association