By Alan Hegerty, CEO, AMG Super
What is the alternative and next steps?
A recent article I wrote from SIAA newsroom, ‘Is a Self-Managed Super Fund right for all clients?’ highlighted the need for advisers to consider whether the benefits outweigh the time, costs, and risks (including financial penalties and prosecution) involved in establishing and managing a self-managed super fund (SMSF). If you determine that the SMSF is no longer suitable, what should you do next?
When should an SMSF be would up?
Our research shows that many advisers no longer use the traditional high account balance as the primary reason for creating or keeping an SMSF. Instead, advisers are adopting a more client centric decision-making framework that considers questions such as:
- Does the client show an understanding of their trustee obligations and the ability to maintain them?
- Does the client want to access alternative investments not available on a platform product, such as AMG Super?
Another consideration advisers face more frequently, is what to do when the trustee becomes unwilling/unable to run the fund due to unexpected death, heath concerns or the parties want to go their separate ways.
With the ever-increasing compliance focus on ‘client best interest’ it is critical that advisers give serious consideration to whether the continuation of an SMSF is the right option for clients.
What is the alternative?
Given the evolving technology in the superannuation platform space, there are now viable alternatives that provide similar flexibility to an SMSF without the associated compliance, administrative and cost burdens.
For example, at AMG Super, we have built a non-custodial retail super platform where each member has an individual share trading account and HIN that is CHESS sponsored by their broker. This provides a majority of the benefits that an SMSF can deliver, without the costs, time and risks involved in establishing and managing an SMSF.
What steps are involved in winding up an SMSF?
The decision to wind up an SMSF should not be taken lightly, but is a question that needs serious consideration when taking into account clients’ best interests.
Below is a summary of the key steps involved in winding up an SMSF1:
- Check the trust deed – for requirements specified about winding up the fund.
- Get written agreement – organise a meeting with all trustees, keep minutes and get every trustee to sign the agreement to wind up.
- Sell or dispose of all the fund’s assets – the benefit of moving to a platform like AMG Super is that you can off-market transfer (OMT) the holdings.
- Finalise outstanding tax and compliance obligations – including transfer balance account report (TBAR) and pay as you go (PAYG) payment summary.
- Pay outstanding expenses and tax liabilities
- Calculate and distribute member benefits – make sure you leave enough cash in the SMSF to pay any amounts outstanding after you have lodged your annual return, such as audit fees and tax expenses.
If making a rollover you need to use SuperStream. If you have not already, you will need to set up an Electronic Service Address for the SMSF in order to use SuperStream.
- Appoint an SMSF auditor to complete the final audit – you must do this before lodging your final return.
- Complete and lodge final SMSF return – this will inform the ATO that the SMSF is now wound up and they will cancel the ABN.
Other considerations
Whether it’s due to a low balance, onerous ongoing trustee and time obligations, administrative burden, costs or the passing of a member; every SMSF will eventually run its course and will have to be wound up.
If you and your client make the decision to close their SMSF, minimising the impacts and cost for the client is a key consideration. Although the administrative and compliance costs might be unavoidable, you can potentially save your clients costs related to the way their benefits are transferred.
Selling down assets to cash, transferring to the new super fund and then reinvesting again, can add significant costs associated to transaction fees and time out of the market.
One way to avoid these costs is to ensure that whichever super fund you select to roll your clients to, will accept OMT of the existing holdings from the SMSF.
The ATO indicated the median age for all SMSF members was 60 as at the end of June 2021. The median age is likely to increase as the super industry matures and our population ages which will see an increased number of SMSFs being wound up. Being on the front foot in assessing your client’s risk of these impacts makes your transition process easier on both you and your clients.
This article is general information and does not consider the circumstances of any investor or constitute advice. No product mentioned in this article constitutes an offer or inducement to enter into any investment activity. Material published in SIAA Newsroom is copyright and may not be reproduced without permission. Any requests for reproduction will be referred to the contributor for permission.
