Are you finding an alternative path to grow your retirement savings? Get a flexible and autonomous solution with self managed superannuation funds setup Services Perth City. Trustees manage an SMSF, unlike traditional superannuation funds. So, they will control investment decisions, compliance, and the continuous management of the fund. When you have proper financial knowledge or particular investment goals, managing your own super fund seems interesting. But it comes with some responsibilities and risk factors. Read on to know the risks associated with SMSF:
Risk of Investment
Since trustees are taking full control of every investment decision, the fund’s performance mainly depends on their knowledge, discipline, and strategy. A wrong decision or the absence of diversification can result in underperformance or significant losses, especially in an unstable market condition. Sometimes, they have no formal investment training like professional fund managers in retail or industry super funds. It leads to an increasing tendency to costly mistakes.
Compliance Risk
Self-managed superannuation funds setup services in Perth City must follow the rules and regulations of the Australian Taxation Office (ATO) and the Superannuation Industry (Supervision) Act. These rules involve who can contribute to the fund, how benefits are paid, and how the fund is structured and operated.
Most importantly, if trustees make any honest mistake, they will be entirely accountable for any breaches. Non-compliance with Australian Standards can lead to penalties. You may have to pay fines, or your funds may lose their tax concessions. In extreme cases, you can face civil or criminal prosecution.
Liquidity Risks related to Self Managed Superannuation Funds Setup Services in Perth City
An SMSF must fulfil its obligations if they fall due. For instance, paying pensions to the retired members or covering yearly operating expenses. There are many SMSFs, investing largely in liquid assets such as property or collectibles in Applecross, Brentwood, Mosman Park, Ardross, Nedlands, Murdoch, Bullcreek, Winthrop, Booragoon, Bicton, Shelley, Rossmoyne, Willetton, Melville, Myaree, Canning Vale, Fremantle, West Perth, Subiaco. It will create complications if the fund needs to make a quick sale of assets at a loss or fail to pay the whole amount.
Risks for the Dead or Disabled Members
If you have not planned the fund, without considering the death or permanent disability factors of a member, risks will appear. When there is no appropriate insurance or succession planning, the rest of the members may experience issues with fund management and benefit payments. Also, disputed beneficiaries can cause a delay in benefit distributions, particularly in stepfamilies.
Risk of Fraudulence
Though family members or close associates run SMSFs, those are not free from fraudulent schemes. So, trustees must be aware of unnecessary investment offers. Besides, they need to avoid high-risk investments or operators with no license at all. Due to fraudulent activities, you may lose a significant portion of the fund’s assets with little or no chance of recovery.
Counterparty Risk Factors
Counterparty risk occurs when a third party, such as a bank, broker, or financial organisation, becomes bankrupt. As a result, you may encounter financial loss, delayed payments, or restricted access to funds.
Political Risk
Alterations in government policy or taxation laws can affect the credibility of SMSFs. For example, adjustments to contribution caps, tax rates, or pension rules may decrease the advantages of self-managed super funds. Hence, trustees may adapt their strategies to meet the changes.
Risks Associated with Inflation & Interest Rate
Enhancements in inflation or fluctuations in interest rates can reduce the real value of the fund’s investments or lower the earnings from fixed-income assets.
Risks of Decreased Cash Flow
When an SMSF holds a concentrated portfolio or niche investments with limited markets, liquidity risk factors increase. In this scenario, an SMSF cannot sell assets at their fair value if necessary, due to a lack of potential buyers.
Final Words
Nonetheless, self managed superannuation funds setup services in Perth City require careful planning, updated education, and often, professional guidance. At Super Fund Accountants, we will help you extend your financial goals beyond SMSF. No matter if you are making retirement plans or seeking home loan solutions, our experts will assist you. Reach out to us to get support for your wealthier future.
