Potential self-managed super fund (SMSF) trustees should think carefully before accepting offers of free establishment services, cautions the SMSF Professionals' Association of Australia (SPAA).
SPAA director for technical and professional standards Graeme Colley said the concept of a free establishment service was not wrong, but people needed to understand what was involved.
"Although establishing the SMSF may be free, the ongoing costs may be higher than what is available elsewhere in the market. Remember, too, some of these ongoing services may be available on a user pays system," he said.
Colley said there were several issues to consider about such offers including those linked to SMSF borrowing, or situations where free fund set-up is being used as a ‘catch' for more expensive on-going services such as trust deed amendments and fund auditing.
"The ongoing services may limit the type of investments into which the fund can invest — such as into a small range of shares, cash and fixed interest. Alternatively, are you signing up for a package, some of which you do not want or will ever use?" he questioned.
Colley told Money Management a common service included in free establishment SMSF packages was pension features — but in situations where the client is young and in accumulation phase, they will be paying for a service they will not need.
"They also need to consider the extent of the service, flexibility and depth of what is being provided as well as comparing the overall cost of administering the fund, and not just the cost of setting it up," he said.
Whilst Colley acknowledged the lack of easily accessible online SMSF comparison tools for consumers, he stressed it was critical before entering into any administrative arrangement that clients do their research between service providers on the market.
