Self Managed Super Funds are very popular among medical professionals, and it is often a popular conversation topic. But are they really that great, or should doctors be considering regular superannuation funds?
Let’s look at a few considerations.
The time factor
Doctors don’t have a lot of spare time, and most doctors I meet with certainly don’t want to spend their time managing their finances.
Managing an SMSF is very time-consuming, even though you can outsource many of the administrative functions to professionals such as accountants and financial advisers.
Before starting an SMSF you need to consider whether you are willing to dedicate the time to manage your own superannuation benefits.
Certainly, in many cases, economies of scale can be achieved with an SMSF, but if you are not careful, running an SMSF can also prove to be a lot more expensive than other super fund options, due to the different layers of fees, such as accounting fees, audit fees, investment administration and management fees. As many doctors outsource the running of their SMSF, this also adds to the cost.
It is critical you keep an eye on costs and always consider whether you really need an SMSF to make certain investments, as many super funds can now replicate SMSF investment options. The one big exception to that is (geared) direct property investment, such as when you buy your own rooms.
One of the biggest issues with SMSFs is that they typically lack diversification, which increases the risk you are exposed to.
Quite often SMSF investors will concentrate their holdings into one particular asset (a property), or asset class (either Australian shares or cash and term deposits), unlike many other super funds who invest in a mix of (Australian and international) shares, bonds and property. This can have a serious impact on the performance of your fund. For example, in the 12 months to 30th April 2017 SMSFs underperformed. You can read more HERE.
I have seen many cases where doctors were using an SMSF for no specific reason, and it was costing them money in terms of higher costs, a lack of diversification and/or lower returns.
It is important you seek specific advice before starting an SMSF, as I personally believe they are relevant for doctors in only very limited circumstances.
Please feel free to contact me on 08 9381 2704 or Yves@affluenceprivate.com.au to discuss.