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Superannuation has become a major political battleground, and the underlying reason for that is simple – the expectation is that by 2029 most people’s super savings will be a bigger asset than their home property value. Kris Kitto, the Director of Superfund Wholesale and Superstash, has penned this piece looking at why people might want to band together with family and friends to create a SMSF, and what they should be considering when doing so.
Understanding the basics
If you’re considering a self-managed super fund (SMSF) but don’t have the recommended $150,000 – $200,000, consider creating a ‘super group’. Up to four people can come together and pool their superannuation so they can share in the investment.
Each of the members is also a trustee with decision-making power, so the importance of forming a cohesive and functioning super group is significant. These groups are usually formed with family members and/or partners, although friendship-based groups are also an option.
The bottom line – it has to be someone you can trust, and someone who holds similar investment values. Have a variety of investment personalities in the group – if you have a risk-taker in the group it’s good to have a more reserved member for equilibrium. How much risk a person is willing to tolerate is an important insight to their investment style.
Take control – be your own managers with your super group
With self-management and more control of how your money is invested, the onus of making sure your super is legally compliant also falls on you and the other members. An independent yearly audit and supervisory levy fees are just a few of the responsibilities you’ll have. The advantage is that all investment decisions are yours too.
If this seems overwhelming, don’t let it prevent you from exploring the option of managing your own super. Help is available in the form of both traditional (read: human) and robo-advisors. Robo-advisors give automated, algorithm-based portfolio management advice and are a fraction of the cost of traditional advisors. A combination of both is also an option, so if you don’t know where to start investing look into a robo solution to managing your super.
Diplomacy and conflict resolution – there’s always a John Lennon and Yoko Ono
Combining money and relationships or friendships, even within a family can be tricky. Everyone in the group has an equal but at times different opinion on how to self-manage your supergroup. When disagreements on where and how to invest arise, keeping your cool and listening to the other members will keep your group cohesive – this is a long term relationship and letting emotions get in the way. Robo SMSFs are great in this respect because unlike you, they don’t have an emotional attachment to your money and are a great way for all group members to agree on a strategy.
Have an exit strategy – what to do when the group breaks up
It’s more complicated getting out of a SMSF than getting into one. There could be a number of reasons you’d want to end your SMSF, for example, if a member dies or a relationship ends. Both instances have implications for your SMSF so be prepared by making specific requirements in your trust deed for when your SMSF winds down. If you’re using an SMSF service, they can take care of such details so you can focus on finding a new member or taking a completely different path with your super.
Whoever you end up choosing, your group should be based on trust, a similar investment vision and the ability to manage risk together.
Kris Kitto is the Director of Superstash