Key Considerations When Choosing Between an SMSF and a Public Offer Fund
Choosing between a Self-Managed Superannuation Fund SMSF and a Public Offer Fund is crucial based on your financial goals, level of involvement, and resources. Here's a breakdown to help you make an informed decision.
Members, Trustees, and Responsibilities
SMSFs:
Up to six members, who are also trustees (or directors of a corporate trustee).
Trustees are responsible for the fund's management, compliance, and investment strategy.
Successful management often requires financial, legal, and investment expertise.
Public Offer Funds:
No member limit.
An unrelated trustee manages all fund operations, including compliance, investments, and reporting.
Suitable for individuals who prefer minimal involvement in fund management.
Costs
SMSFs:
Setup costs include trust deed creation, legal fees, and ATO registration.
Ongoing expenses for accounting, auditing, and compliance.
More cost-effective for larger account balances.
Public Offer Funds:
Costs include administration, investment, and transaction fees, which vary by fund.
Some funds offer reduced fees for higher account balances.
Regulation
SMSFs:
Regulated by the Australian Taxation Office (ATO).
Trustees must appoint an auditor to ensure compliance with tax and superannuation laws.
Public Offer Funds:
Regulated by the Australian Prudential Regulation Authority (APRA).
Trustees are not directly involved with compliance oversight.
Investment Strategy
SMSFs:
Direct control over investment decisions, including property, shares, and other assets.
Responsibility for developing and reviewing the fund's investment strategy.
Must consider risk, diversification, and liquidity.
Public Offer Funds:
Limited to the investment options provided by the fund.
Typically offer a wide range of managed investment portfolios.
Borrowing to Invest
SMSFs:
Can use Limited Recourse Borrowing Arrangements (LRBAs) to acquire assets such as property.
Public Offer Funds:
Some funds offer internally geared investment options.
Complaints and Disputes
SMSFs:
Disputes must be resolved through remediation, arbitration, or legal proceedings.
Trustees are responsible for managing member disputes.
Public Offer Funds:
Members can escalate unresolved disputes to the Australian Financial Complaints Authority (AFCA).
Fraudulent Conduct or Theft
SMSFs:
No access to government financial assistance in cases of theft or fraud.
Public Offer Funds:
May be eligible for compensation under government schemes.
Key Takeaways
Control vs. Convenience:
SMSFs provide greater control but require time, expertise, and resources.
Public offer funds offer convenience and professional management.
Cost Efficiency:
SMSFs are more cost-effective for larger balances due to fixed administrative costs.
Public offer funds’ fees scale with account size, potentially offering cost advantages for smaller balances.
Investment Flexibility:
SMSFs allow tailored investment strategies, including property and private assets.
Public offer funds limit options to their predefined portfolios.
