Mr Kearns was appointed CEO of Centric Wealth by CHAMP Private Equity in December of 2011 to manage the turn around and growth of the business in preparation for its sale.

Mr Kearns said he was proud of and privileged to have worked with such a high caliber team who were critical in ensuring the success to date for all stakeholders.

“I am very proud of the result we achieved for Centric Wealth, its staff and clients.  The team was incredibly diligent in their commitment and unwavering client service. This focus has delivered the success Centric Wealth has achieved to date and positioned the business for its next phase of growth.

Findex acquired the business for $130 million with the backing of KKR and they have a strategy to continue on an acquisition path. In his capacity as CEO, Mr Kearns successfully broadened the firm’s revenue base and expanded its operational structure ready for sale and transition under new ownership.

Spiro Paule, CEO of Findex said, “Phil and the Centric Wealth team have transformed this business and now we have a vision to take it to the next level. The achievements of the Centric Wealth team to date will enable us to achieve our future goals and we want to add to that great work to make an even better company.

“I would like to thank Phil for his significant contribution to this business and wish him all the best with his future endeavors.”

The combined group has nearly $8 billion in funds under advice as well as an accounting, lending and insurance business and is the largest privately owned, non-aligned wealth manager in the country.

Mr Kearns added, “the Findex team has robust and efficient systems and processes and are experienced in post acquisition transitions. They have a strong focus on continuing to improve the high quality, personalised service Centric Wealth provides to it’s clients. The time is right now for me to step down, I wish them and the Centric Wealth team the best for the future and look forward to witnessing the continued success of the combined group.”

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Estate planning can require special focus for same sex couples .

Centric Wealth has said that even without recognised gay marriage, there are many areas where those in same sex relationships are given the same rights as traditional couples.  However, as legislation varies amongst states and territories, it is imperative that same sex couples seek estate planning and financial advice to ensure their partner is taken care of in the future.

Natasha Panagis, Centric Wealth technical specialist said that same sex couples who are in a registered relationship with their partner or live with their partner in a de-facto relationship will have their partner recognised as their spouse under legislation for superannuation, taxation and social security purposes. “As most states and territories now allow the registration of a de-facto relationships, be they same or opposite sex, the broader definition of spouse means that same sex couples must ensure that adequate provision is made in the will for their beneficiaries such as their spouse or children. Thus, to avoid problems in the future, it’s important that same sex couples obtain advice on achieving their estate planning goals and how to minimise disputes after death. “Its natural for younger people not to want to make a will as few of us relish contemplating our mortality, which is at the centre of the will making process. Happily, though, more and more people are realising the making of a will is simply good financial housekeeping and that it is never too early to make one.

“It is highly recommended that a will be drawn up with the assistance of a lawyer given the importance of the document. These professionals will provide advice and most importantly help ensure a person’s estate planning wishes occur,” Ms Panagis said.

“All too frequently what may be fought over in a legal suit can get consumed in legal bills and everyone loses as the cost of the dispute is generally incurred by the estate which erodes the amount for intended beneficiaries.

Ms Panagis said superannuation death benefits can also be paid to a same sex partner if they are in a de-facto or a registered relationship. In the past, the partner needed to establish financial dependency or show an interdependency relationship.

Similarly, same sex couples can also make binding financial agreements, also known as prenuptial agreements, which can allow a couple to consider how assets will be divided if the relationship breaks down. Couples wishing to consider binding financial agreements for their situation should seek legal advice. These agreements can be made before, during or after a relationship.

Ms Panagis said that dying without a will (ie. dying intestate) means control over who will receive the assets in your estate will be taken out of your hands and will be determined by intestacy legislation, which varies across the country. To die without having a legal will may leave those you love with unnecessary distress, uncertainty and expense.

“The three soundest pieces of advice I would give same sex couples who are in serious long term relationship is to ensure their relationship is de-facto or registered, for both partners to make a will with the assistance of a professional adviser and to create a binding financial agreement. The importance of estate planning and financial advice cannot be underestimated”.

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Louise Donald

Leading wealth management advisory firm, Centric Wealth, today said that despite the Federal Government’s Living Longer Living Better reforms, the aged care industry continues to be plagued by complexity and uncertainty, particularly in relation to bonds.

An accommodation bond, or accommodation charge, is payable upon entry to an aged care facility by the majority of residents. The aged care facility holds the bond in ‘trust’ for the resident and uses the interest earned on the bond to assist with general maintenance costs associated with the nursing care facility.

Centric Wealth adviser, Louise Donald, said the aged care reforms aimed at protecting residents, may still cause uncertainty in the community.

“The issue of bonds is understandably confusing for many people.  The failure of a Melbourne nursing home last year, saw 16 families in fear of losing bonds of up to almost $450,000 each.   Fortunately, the Federal Government guarantees bonds, so the families will eventually recover the monies.  However, the incident would have doubtlessly placed considerable stress on some of the most vulnerable people in our community and their families.

“Currently, residents can negotiate their own bond levels.  Paying a higher bond means residents can access higher quality facilities, guarantee placement at a preferred facility, increase the level of means-tested pensions or reduce the required daily fees.  However, from 1 July 2014, all nursing homes must advertise their maximum required bond, therefore negotiating a higher bond than this will not be possible.”

Other changes soon to come into effect include the removal of the distinction between low and high care. Currently, aged care facilities are classified as either ‘low care’ or ‘high care’, with the main difference being the level of care that is provided.  A lump sum bond is generally required upon acceptance in a ‘low care’ aged care facility but there is no bond payable if you are assessed as requiring a place in a ‘high care’ facility, as an accommodation charge is required instead.  However, from 1 July 2014, the reforms will remove this distinction and consequently, there will be a bond payable for all aged care facilities for residents, unless they meet the criteria for exemption.

The amount of bond payable depends on a number of factors, however a key factor is the financial situation of the person entering the home. Currently, the aged care facility can charge any amount of bond as long as the resident is left with at least $44,000 in assets.  The maximum bond payable is dependent on the assets of the person entering the nursing home.

In terms of refunds, upon exit from a nursing home the original bond amount will be returned to the resident or their estate minus a retention amount. The current retention amount deducted from bonds over $39,720 is set at a maximum of $331 per month for a maximum of 60 months ($331 x 60 = $19,860).

“From 1 July 2014, retention amounts will not be deducted from accommodation bonds, rather, the full bond amount will be refunded, which is also reflected in the new name for lump sum bonds from 1 July 2014 – ‘refundable accommodation deposit’.  However, as was evident last year, there are occasions where the bond may be lost.  It should also be noted that residents who elect to pay the bond by interest only instalments will not receive any of this back from the nursing home on exit.”

Ms Donald said; “The last thing most families need when investigating aged care or dealing with an estate, is the surprise of extra costs or lost monies.  That’s why it’s so important to ensure you understand exactly what you need to pay and what entitlements may be available.

“While you can choose to have an asset assessment carried out by Centrelink or the Department of Veteran Affairs, it is worthwhile speaking to a qualified financial adviser before completing any asset assessment forms.”

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Financial Index Wealth Accountants (“FIWA“ or “Findex”) has entered into a Bid Implementation Agreement (“BIA”) with high net worth advisory firm Centric Wealth Ltd (“Centric Wealth”), under which Findex has agreed to acquire all outstanding ordinary shares issued by Centric Wealth by way of an off-market takeover bid (“Offer”)[1].

Under the terms of the Offer, Centric Wealth shareholders will be entitled to receive 8.9 cents cash per ordinary share.

The Centric Wealth board of directors (“Board”) believes the Offer is fair and reasonable, and has unanimously recommended that shareholders accept the Offer, subject to there being no superior proposal. Centric Wealth’s directors have also agreed that they will accept the Offer with respect to any shares owned or controlled by them, subject to there being no superior proposal.

FIWA founder and chief executive officer Spiro Paule said the transaction would bring together two businesses with a strong focus on providing the highest quality financial advice for clients.

“The combination of the two businesses creates one of Australia’s largest, non-aligned financial advisory organisations,” he said. “We are both focussed on providing the best possible advice and solutions to our clients. We will be able to share respective areas of expertise and offer clients and employees a greater level of sophistication and opportunity.”

Centric Wealth chief executive officer Phil Kearns said the businesses have similar core values and cultures, geared toward providing the highest quality, non-aligned advice for clients.

“We have a strong alignment of values and culture within our respective organisations, and by leveraging each other’s processes we will continue to deliver on our client promise for many years to come. It’s also a win for our staff and shareholders and it will ensure we can develop and improve the service we currently deliver clients.”

FIWA will partner in the proposed transaction with KKR Asset Management, a credit business with $20.4 billion in assets under management that is an affiliate of KKR & Co. KKR provided acquisition funding and KKR will have an equity interest of approximately one-third in the merged group.

“We believe the combined strength of Centric Wealth and FIWA underpinned by the global reach and capability of KKR will create a new force in Australian wealth management,” added Paule.

“We are pleased to support the growth of the combined business and look forward to being a long-term constructive partner to Findex. This transaction further reflects the breadth and diversity of KKR, working constructively on complex transactions around the world,” said Jamie Weinstein, Member of KKR and Global Co-Head of Special Situations.

FIWA was advised by Jeff Singh of Chase Corporate Advisory.

—————–

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Living longer requires good planning: Centric Wealth.

Because most people tend to under estimate how long they are going to live, very few are able to effectively plan their financial affairs for the duration of their life. That is the view of wealth advisory firm Centric Wealth.

“Very few people fully understand the consequences of what we commonly refer to as the longevity risk,” said Ben McBride, Investment Research Manager Centric Wealth Advisers.   “This risk centers on the fact that the longer you live, the more likely you are to outlive your financial resources unless you put in place effective strategies and structures.

“The first step in understanding and then mitigating the longevity risk is to understand the investment lifecycle. You also need to have a clear idea of how long you’re likely to live.  All of this information will help you decide how you should manage your money at different points in your life.”

The ‘investment lifecycle’ describes how people translate human capital into financial capital during their lifetime. While this lifecycle provides a conceptual model of how people should build their capital to meet their income needs, rarely does life conform to such fixed outcomes.

“The lifecycle model incorporates many assumptions which materially impact people’s lives, particularly their retirement and older age,” said Mr McBride. “For example, a person’s pre-retirement income can be highly variable due to them having voluntary or involuntary breaks from employment, receiving inheritances, suffering ill health, or losing their partner.

“These events can change a person’s capital and income positions as do investment returns, which can never be guaranteed. Despite all of this uncertainty, there are a number of simple steps that can be taken to reduce the risk of running out of money in retirement.”

The key financial planning steps recommended by Centric Wealth include:

• Contributing more to superannuation prior to retirement;
• Keeping in good health;
• Reviewing working arrangements;
• Maximising social security entitlements;
• Monitoring income levels;
• Reviewing estate planning;
• Understanding risk and return portfolio trade-offs; and
• Reviewing overall financial planning.

“In terms of superannuation, the Australian Government has committed to increasing employer contributions from nine per cent to 12 per cent of income; but many studies estimate the real level of income people need is closer to 17 per cent,” said Mr McBride.

“That is why we recommend to clients that they take advantage of the power of compound interest as early as possible and contribute as much as they can throughout their working lives.

“Additionally, while it may appear unusual for your wealth adviser to be telling you to keep healthy and active, this is a relatively simple way of lowering the probability of substantial health care costs, which can significantly affect the quality of their retirement.”

Mr McBride said every investor wants to minimise investment risk but being overcautious can be just as detrimental as not being cautious enough.

“Being too cautious can result in your capital being eroded by inflation and prevent your assets from delivering a sustainable level of income,” he said.  “A good financial plan will make allowances for variable investment outcomes and use dynamic asset allocation combined with good security selection to protect your wealth and limit event risk.”

Mr McBride said the Australian Government is encouraging more people to stay in work longer.  This will continue to create more opportunities for older workers as a shortage of young workers builds over time. While retiring later may not be ideal, from a lifestyle perspective, sometimes making the hard decisions now can help reduce the risk of financial problems in the future.

“By putting in place transition plans from full-time employment through to partial and then total retirement, people can continue to build their nest eggs tax effectively while reducing their working hours in the lead up to full retirement,” said Mr McBride.

“In order to make such transitioning work, it is vital you monitor your income levels so you can defer or reduce your discretionary income spending in a down market to preserve your capital and limit the impact of drawdowns from your retirement funds.”

Another key part of effective financial planning is estate planning, which should not just include wills, inheritance and funeral arrangements, but also how people want to be cared for in the event of ill health.

“By engaging your family in the estate planning process as early as possible, you will be able to reduce the financial and personal impacts these issues may have when the time comes,” said Mr McBride.

“By reviewing your investment risks, savings, income, and spending levels on a regular basis, with the help of a highly experienced and skilled wealth management adviser, you will be able to ensure your financial plan remains on track and relevant, regardless of how long you may live,” concluded Mr McBride.

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Increasing costs of aged care leaving some families struggling to meet costs.

Leading wealth management firm, Centric Wealth, today said that the current cost of aged care services, combined with complex carer and pension entitlements rules, means an increasing number of families are unable to pay for the care services their elderly relatives need.

“Over the past 100 years, life expectancy levels for 65 year old men have increased from 11 to 21 years,” said Centric Wealth Adviser, Glen Stander. “For women aged 65, life expectancy levels have increased from 10 to 22 years.

“Because we are all living longer, the number of people receiving a full or part aged pension has increased to around 75% of the population aged 65 and over. For those aged 80 and over, around 80% are reliant on a full or part aged pension.

Mr Stander said currently the aged pension is equivalent to around 30% of an average male wage and that it’s unlikely to be enough to fund residential or in-home care services for people aged 65 or over, particularly when these services need to be provided for 20 years or longer.

“That is why an increasing number of people are seeking professional advice as to how they can structure their finances to ensure they can fund the long-term care of their elderly relatives without negatively impacting their own finances or quality of life.”

As of 30 June 2011, there were approximately 169,000 people living in residential aged care in Australia, the majority of which are on a permanent basis. About three quarters of these people are aged 80 or over, with around 57% aged 85 and over.

“The current rules for the provision and cost of residential or in-home care services are extremely complex,” said Mr Stander. “If they are not properly understood, the financial position of both those being cared for and their families can be significantly impacted.”

According to Centric Wealth, all residents in care need to pay a basic daily fee as a contribution towards their accommodation and living costs. The Government has set a maximum basic daily fee of $ 45.63 per day, which is indexed on 20 March and 20 September each year in line with movements in the aged pension.

“In addition, everyone who moves into an aged care home generally has their assets and income tested by Centrelink so the Department of Health and Ageing can work out what amount of fees that person should pay.”

The income tested fee is another ongoing daily fee which is only paid by aged care residents whose total assessable income exceeds the income free levels which are currently $936.40 per fortnight for a single person and $ 918.40 per fortnight for each member of a couple. The maximum income tested fee you may be asked to pay is currently $72.48 per day.

Generally, there are two types of residential aged care, low level care (ie. hostels) and high level care (nursing homes), with the main difference being the level of care that is provided.

“If a person enters a low level care facility or a residential aged care home that offers extra services and their assets are above a certain amount, they may also have to pay an accommodation bond, the amount of which is not set but subject to negotiation between the person going into aged care and the service provider,” said Mr Stander.

“Some of these accommodation bonds can be more than $500,000 depending on the particular aged care facilityHowever, it is important to note that if the person entering the aged care facility has assets of less than $44,000, they cannot be asked to pay an accommodation bond.”

“Because of the complexity of the aged care sector, not just in terms of the cost of residential care but also carer and pension entitlements, effective financial planning is key to achieving the best outcomes for everyone involved,’’ said Mr Stander.

Further, new aged care reforms were recently legislated and will be effective from 1 July 2014. The changes will be phased in over a number of years, which could add more complexity and further decision making for those thinking about aged care

“From a financial perspective, an increasing number of our clients’ are concerned about what type of investment strategies they need to put in place to adequately fund the aged care requirements of either themselves or their parents. For example, one of the most common questions we get asked is whether an account based pension or annuity is more beneficial in terms of being able to maximise Centrelink or DVA benefits and whether this pension or annuity income may affect their aged care fees.

“Also, to identify and implement the right aged care, sufficient time needs to be spent exploring all available options as well as appropriate financial management and investment strategies,” said Mr Stander. “Effective financial planning helps take some of the emotion out of the decision making process as the key points are agreed well in advance.

“Often client’s do not want to ask their parents if their Last Will and Testament is up to date or suggest they put a Power of Attorney agreement in place. Additionally, many are concerned they may not fully understand their duties and obligations if they are appointed executor of their parents’ estate.

“We work with our clients to ensure all of their questions are answered and appropriate plans are put in place well in advance of them having to make what are difficult, complex and emotional decisions.  This planning helps give our clients, and those they are caring for, greater peace of mind.”

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Centric Wealth DHA Fund wins PIR Unlisted Fund of the Year.

Wealth management firm, Centric Wealth and its partner DHA, have been awarded a prestigious award by Property Investment Research (PIR) for the Centric DHA Residential Property Fund (the Fund).  The award comes as the Fund receives a AA+ rating from the same research house.

The Fund, gives investors exposure to a diversified residential property portfolio that is underpinned by long-term leases to the Defence Housing Australia (DHA), delivering income returns supported by AAA rated contracts.

Centric Wealth Chief Executive Officer, Phil Kearns, said the Fund was designed to overcome many of the issues that prevent investors from accessing residential real estate.

“This is the first time DHA has offered properties via a trust structure and it is also the largest residential fund of its kind in Australia. What sets this Fund apart from other residential funds is the Government backing, diversified portfolio and the fund managers ability to select the underlying properties. The portfolio has been specifically designed to provide investors with geographic diversification using a population weighted portfolio of residential properties across Australia and a mixture of housing styles.

“We are very pleased that besides receiving a AA+ rating from PIR, we have now also been awarded Unlisted Fund of the Year.”

DHA also maintains a database of more than 10,000 prospective investors, and the history of asset sales undertaken by DHA suggests there will be limited risk to the saleability of assets.

Mr Kearns said the Fund is available to both retail and institutional investors.  However, the Fund has particular relevance for institutional investors as access to residential real estate is usually difficult for wholesale investors to access. The minimum investment for institutional investors is $20 million, while high net worth individuals can invest in the Fund for a minimum of $50,000.

“Our newly appointed Business Development Manager, Andrew Mehrtens, is focusing on the sale of the Fund to superannuation funds and institutions. Centric Wealth has a clear strategy for expanding our operations and Andrew has quickly become a valued member of the Products and Services team.”

Mehrtens has enjoyed a meritorious international rugby career that saw him played 70 tests for the All Backs and score 967 test points, as well as coaching and playing in England, Italy and France. In 2011, he completed a Bachelor of Arts degree with Stage 1 and 2 Finance papers from the University of Canterbury in Christchurch.

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Rushing decisions can lead to rejected claims.

Buying life insurance online may seem an efficient way of buying life insurance, but for many policy holders it can significantly increase the risk of them not being adequately covered and having their claim rejected in the future.

According to leading wealth advisory firm, Centric Wealth, the complexity of today’s life insurance policies can result in a claim being rejected because the smallest of details was incorrect at the time the policy was purchased.

“When most people take out life insurance they do not anticipate having to use it,” said Jon Pillemer, Joint Head of Risk at Centric Wealth. “If they do end up making a claim, their success will ultimately depend on the actual product they purchased and how much attention they paid to understanding the details of their policy.

“Many people wrongly assume that purchasing life insurance is as simple as going on line, selecting the cover they want, filing in the relevant forms, and paying their premium. In reality, insurance is a lot more complex, which is why an increasing number of people end up not being covered even when they should be.”

Mr Pillemer said one of the biggest risks associated with buying life insurance online or over the phone is overlooking important details and not fully understanding exactly what is covered.

“Due to the complexity and amount of jargon found in many life insurance products, it is not always clear what cover is being offered and, more importantly, what situations are not covered by the policy,” said Mr Pillemer.

“Unfortunately we have had clients who have purchased life insurance without seeking our advice who have ended up with inadequate cover or unsuccessful claims. This has resulted in significant personal and financial stress either for our client or their families.

“The solution is to purchase life insurance through a risk adviser who is going to focus on more than just the type of your policy and the level of cover. By understanding your personal and financial circumstances, they will be able to assess how these will impact your insurance needs now and in the future.

“They will also regularly review your insurance cover and recommend any policy changes or upgrades as your personal and financial circumstances evolve.”

For Centric Wealth, non-alignment with any insurance provider is also an important factor when it comes to choosing an appropriate risk adviser.

“This non-alignment means we have the flexibility to find the best life insurance solution for our clients,” said Mr Pillemer. “We also support our clients through the entire life insurance process including any claims they or their families may have to make. This level of support includes fighting for our clients when an insurer will not pay out what we believe is a legitimate claim.

“While many life insurance claims can be relatively straight forward, our clients have the added benefit of knowing we are skilled and knowledgeable in the claims process and ready to act on their behalf”.

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Protecting assets an important part if planning.

Investors looking to maximise the effectiveness of their assets need to ensure they are being held and managed using the right investment structure. Additionally, these structures must be aligned not only with the investor’s current financial and family circumstances, but also encompass how circumstances may change over time.

According to Adam Pearsall of Centric Wealth, all investors should regularly view their investment structures to ensure they are getting the best out of their financial assets.

“Broadly speaking there are four main types of investment structures including personal, company, trust, and superannuation ownership. Depending on your particular circumstances, one structure may be more suitable than another,” said Mr Pearsall.

For example, some structures are better for tax effectiveness while others can help protect assets from creditors or other claims.

“The right investment structure is an essential part of the financial planning process because it dictates how your assets work for you, now and in the future,” explained Mr Pearsall.

“Because investment structures control how your investments are legally owned, it is vitally important you review them when your financial or family circumstances change due to a bereavement, inheritance, divorce or changes to your employment status.

Mr Pearsall said when choosing which investment structure suits your particular circumstances, the key objective must be to ensure assets are protected, and kept in the most appropriate and tax-efficient structure in order to maximise your after-tax income.

“The five most common reasons for using different investment structures are tax effectiveness, protection of assets, estate planning, risk mitigation and delegation of control. The majority of investors use a combination of investment structures to meet their particular needs. It is very rare for an investor to have only one investment structure for all of their assets.”

Mr Pearsall said the simplest and lowest cost investment structure is personal ownership, which Centric Wealth tends to recommend for clients who are on a low marginal tax rate and likely to remain so in the future. “This investment structure is also best suited to those investors who want unrestrictive access to their income and capital,” he said.

According to Centric Wealth, company ownership has one of the highest set-up and compliance costs. It is most often used for business rather than investing purposes, although it can be a worthwhile approach if the investor is on a high marginal tax rate or acts as a beneficiary of a discretionary family trust.

“One of the main advantages of investing via a company is that income and capital gains derived by a company are taxed at a flat rate of 30 per cent which is significantly less than the maximum marginal personal tax rate plus medicare levy of 46.5 per cent,” said Mr Pearsall. “Another advantage is that a company has limited liability which is great for investors looking for asset protection.

“It is important to remember, however, that a business and personal investments should not be owned within the same structure.  Otherwise this may expose the investments to risks associated with the business. It may also expose the investments to the creditors of the business.”

When it comes to trust ownership, discretionary and fixed trusts are the most popular due to their ability to provide asset protection, maximise tax-effectiveness, and assist with estate planning (testamentary trusts).

Trusts can also be a very useful structure for continuity of asset ownership because assets held in a trust do not form part of a person’s will. Assets owned by a trust continue to be owned by that trust in the event of the death of the controller of that trust.

“Like company ownership, trusts can be relatively complicated to set-up and maintain,” said Mr Pearsall. “They also have higher set-up and compliance costs. We generally recommend trusts for clients who want to maintain control of their investments, add a layer of asset protection and tax-effectively stream income or capital gains.”

The other option for investors looking to manage their assets is superannuation which many people believe is a type of investment rather than a structure.

Mr Pearsall said the two main uses of superannuation include accumulation of assets in a low-tax environment for the provision of retirement benefits, and holding of assets in potentially a zero tax environment for payment of a tax-effective income stream in retirement.

“The biggest advantage of superannuation is the favourable tax treatment it receives.   Once fund members start receiving a pension, they are likely to pay no tax on either income or capital gains .

“Superannuation as an investment structure is governed by a number of strict rules, which change regularly. These rules affect the amount of money an investor can contribute, how contributions, income and lump sum withdrawals are taxed, when investors can access their funds, and when death benefits are paid out and to whom.

Mr Pearsall said that as each investment structure is very different, it is vital that investors seek professional advice when choosing how their assets are going to be held and managed.

“Investors should seek professional help to review their investment structures on a regular, if not on-going, basis. This will help ensure their assets are working as effectively as possible to meet their current and future financial objectives.”

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Poorly managed SMSFs may have a national impact.

Leading Wealth Management firm, Centric Wealth, today said the growth of self managed super funds (SMSFs) could cause problems for retirees and create further strain on the nation’s budget, if large numbers of SMSF trustees fail to correctly manage their retirement funds.

According to ATO statistics, the SMSF sector is currently worth $500 billion (about one-third of all superannuation assets) and has nearly one million trustees.

Phil Kearns, Centric Wealth Chief Executive Officer said the latest research from the SMSF Professionals’ Association of Australia shows an additional 1.4 million people are considering setting up an SMSF over the next three years.

“This will mean the number of self managed retirees will swell to almost 2.5 million.  Is it likely that all these people will have the knowledge, experience and time needed to manage their SMSF effectively?   In my view, this could create a number of problems for the individuals and the government, who may end up financially supporting these people down the track.”

Mr Kearns says many people incorrectly believe running an SMSF is just a matter of getting the investment strategy right,.

“Managing an SMSF is no easy task.  While many SMSF trustees are highly proficient at managing their strategy, compliance and investments, others may not appreciate the complexities involved or the implications of the role of being a trustee.”

Natasha Panagis, Centric Wealth’s Technical Specialist, said complex and ever-changing requirements and regulations mean you need to have a very thorough understanding of the rules to avoid large fines.

These individuals will all need the time, resources and knowledge to ensure they abide by government regulations, maintain adequate insurance and receive good investment returns. Getting this wrong can have an even greater negative impact than simply missing investment returns.

“Aside from onerous reporting requirements, there is also the issue of costs.  It is not uncommon for clients to be paying their accountant over $6000 a year to administer their fund and ensure correct audit and compliance requirements are followed. Some administration providers will quote one headline low fee, but hit the trustee with a range of fees for various products and services.”

“We tell our clients that they need to have at least $500,000 in assets, plus other alternative assets like investment property, before an SMSF is worthwhile.  However, even if an individual has this level of assets, it does not mean they should manage their own super.  There is much to be said for relying upon professional advice and spending your time and effort on other areas of your life.”

Mr Kearns said he believes the government needs to provide more education to potential SMSF trustees.

“If the government does not act on this issue now, they could find vast numbers of Australians retiring without adequate retirement savings.  This will mean strain on the nations Aged Pension budget.  Ensuring that anyone setting up an SMSF has the right knowledge – or the right support by way of an appropriate qualified financial adviser – is the first step in avoiding the pitfalls of running their own fund.”

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