#013 - SMSF Expert Breaks Down SMSF Vs Industry Funds 📉📈

In this episode of SMSF Insider, host Troy, founder of Blue Chip SMSF Services, discusses the key differences between industry funds and self-managed super funds (SMSFs). Troy highlights that industry funds operate on a percentage-based fee structure, making them suitable for individuals with lower balances, as they offer a more hands-off approach to superannuation management. In contrast, SMSFs require more active management and reporting obligations but provide greater control and a wider range of investment options, making them ideal for those with higher balances. Tune in as Troy answers common questions and breaks down misconceptions to help listeners take charge of their financial independence. Remember, this podcast is for educational purposes and not personal advice, so consult a licensed advisor before making any investment decisions.

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Please note: The information provided in this recording is for coaching and educational purposes only. It should not be considered personal financial advice. Everyone’s situation is different, so before acting on any of the content discussed, please seek independent financial advice tailored to your specific circumstances.

Timestamps:

00:00:00 - 00:00:00: Introduction

00:01:02 - Understanding Industry Funds

00:01:46 - Key Differences: Control and Investment Options

00:02:49 - Performance Comparison: SMSF vs. Industry Fund

00:03:53 - Cost Structures: Fees and Fund Balances

00:04:58 - Choosing the Right Fund for You

00:06:01 - Hands-On Management of SMSFs

00:07:05 - Key Questions to Consider

00:08:40 - Compliance and Reporting Obligations

Episode Transcript

(00:00):
With an industry fund, that will be a percentage-based fee. So
the more you have in super, the more you'll pay in fees. With an industry fund,
you've got somebody else that's going to look after the administration of the fund for
you. It's sort of like a set and forget. With an SMSF, it is a little bit more hands-on.
There are some reporting obligations as an SMSF trustee. So one
of the key questions to ask before deciding which fund

(00:21):
type is right for you, whether that be industry or SMSF, And
some of the key questions is to welcome to SMSF Insider, where
we help busy professionals to gain financial independence using
an SMSF. Hi, I'm Troy, founder of Blue Chip SMSF Services.
And over the last 20 years, I've helped thousands of Aussies manage the
complexities of self-managed super funds. And in this podcast, I'll

(00:42):
answer your questions, break down the myths so you can take charge of your
financial freedom. Let's get into it. Hey guys, just a quick disclaimer and
just a reminder that this is not personal advice. So make
sure you speak with a licensed advisor before making any investment decision.
We'll be talking about SMSFs versus industry funds. So
what is an industry fund? An industry fund is essentially a pooled

(01:03):
superannuation fund with a few different investment options and
probably better for sort of maybe lower balances as opposed to
the higher balances. So typically, With
an SMSF, you'll typically see a bit of a higher
balance. And obviously, when it comes to investing, you've got a
much broader range of investment options available to you. So

(01:26):
the two main differences are, of course, balances
and as well as control. So in an industry fund, somebody else
is making those decisions on your behalf. your investment decisions. And
with an SMSF, you're actually making those decisions as
opposed to somebody else. So you can invest in an industry
fund, as I mentioned, we'll have maybe five or six different

(01:47):
options for you, which might be okay with
smaller balances when you're starting out. But as time goes on
and your balance does grow, an SMSF may become a
little bit more suitable when you
have a bigger fund balance and you want to have a little bit more control over
where your funds are invested. So they're the two main differences when

(02:09):
it comes to investing, when it comes to
an SMSF versus an industry fund. So which ones
fare better? Well, it's a good point. So it really depends where
the money is invested. So if you're in an
industry fund in a conservative portfolio versus an
SMSF with Australian international equities, the

(02:31):
SMSF is, of course, going to outperform. But on
the flip side, if you're in an industry fund with
exposure in a high growth portfolio and your SMSF is sitting in
cash, well, the industry fund's going to outperform. So
it really depends on where your funds are
invested as to which fund is going to perform better. The

(02:52):
main difference is when, apart from obviously control
and investment options when you're talking about industry fund
versus SMSF, is probably more so
geared towards the fee arrangement or how you
pay for those funds. So with an industry fund, that typically will
be a percentage-based fee. So the more you have in super, the

(03:15):
more you'll pay in fees. With an SMSF, typically will
be a flat fee structure. So it does become more cost
effective once you have a
bigger fund balance to have an SMSF because you're
not paying, if you've got a larger fund balance and you're paying percentage-based
fees, then of course those

(03:36):
fees are going to be larger. So it does become a little bit more favorable with
the higher fund balances and that's why when you do, when
you're talking about an SMSF, they do sort of, the ATO has a guideline of
200,000. It's sort of where the crossover typically
is when it becomes perhaps a little bit more cost effective to have
an SMSF over an industry fund. So they're the main

(03:58):
differences with industry versus SMSF.
As I said, when it comes to performance, it
really depends on where the funds are actually invested. An
industry fund could outperform an SMSF if it's invested in
a high growth fund versus an SMSF in a conservative sitting
in cash or fixed interest and vice versa. That is the answer. One

(04:23):
is better than the other. It really comes down to how much control do
you want to have over your retirement savings and what
assets do you typically want to invest in. If
it is more than just a conservative growth
balanced or high growth fund, if you do want to be a
bit more involved and you want bigger assets or

(04:44):
assets like property, then certainly an SMSF is
going to maybe a better option
for those that want a bit more control over their retirement savings.
So the answer is, sorry to disappoint anyone
that thought I was going to favour one over the other. It really does depend on
where the assets are, where the funds are invested. So

(05:09):
most people that are establishing an SMSF, typically
they want to invest in an SMSF because either they
have a higher fund balance or they want to invest in assets that
they can't do through their industry fund. So when
I say assets that you can't invest in an industry fund, I'm talking more about

(05:29):
direct property and crypto, for
example. Those probably being the main one and traditional asset
class that most Aussies love and
understand. Most people do understand bricks and mortar and have
had a positive experience over the
longer term. So certainly when establishing a

(05:50):
fund, most people want to establish an SMSF for
that purpose over an industry fund. There are obviously major
differences between the two. So with an industry fund, you've got somebody
else that's going to look after the administration of the fund for you. It's sort of
like a set and forget. With an SMSF, it is a little bit more hands on.
There are some reporting obligations and obligations

(06:12):
as a whole as an SMSF trustee. And that is the main one
being having a tax return done at the end of the financial year and
an audit done. Now, most people when establishing an
SMSF will outsource, typically outsource that role because no one
is an expert in accounting and not everyone is an independent
auditor. Most fund trustees will outsource that

(06:32):
responsibility for their SMSF. And
certainly, it's not something you need to worry about with an industry fund because it's
all done for you. But they are the major
differences when it comes to reporting and responsibilities, is
that SMSF is a little bit more
hands-on and it isn't typically a

(06:54):
sort of set-and-forget structure. Just quickly guys, if
you're a busy professional fed up with traditional super funds and overwhelmed by
the setup of your SMSF, we can help. Book in a call with my team
using the link in the show notes and let's build your future on
your terms. Now, back to the episode. So one of the key questions
to ask before deciding which fund type is right

(07:15):
for you, whether that be industry or SMSF, And some
of the key questions is, do I want a little bit more control over my retirement
savings, or am I happy with playing a bit of
a passive role? If the answer is you want a little bit more control,
then obviously an SMSF is probably going
to be a little bit more suited. And also, where do you want to invest your funds?

(07:36):
So if you're adamant that you want to invest in
property, then in direct property, then an
SMSF is probably going to be a little bit
more suited towards your needs as opposed to an industry fund. Or,
I want to have gearing, I want to have a loan inside my SMSF
to buy property. Well, again, or a loan inside

(07:58):
my super fund to purchase property, then of course an
SMSF is going to be probably more suited to you than an
industry fund because you can't purchase direct property
through an industry fund. You can only do that with an SMSF. There's
some of the main questions that perhaps
might help you make up your mind between an industry fund and

(08:19):
an SMSF. Of course, balance as well. If you've got a lower balance, then
an industry fund might be more suitable for you personally. But
certainly, if you've got a bit of a larger balance and want to get a little
bit more involved, then that's probably when an SMSF is going to be right
for you. Before you're making any investment decisions, please seek
advice, personal advice from a qualified advisor or

(08:42):
planner. But certainly, these
episodes are for education purposes only. They're not to provide advice.
It's simply to provide you with a little bit more education before
making any investment decisions. So compliance and reporting hugely
differ between an industry fund and an SMSF. With an SMSF, of
course, you have reporting obligations with your tax return on

(09:04):
your audit sort of every year. With an industry fund,
there really is no reporting obligations or
compliance obligations that you need to worry about because your industry fund
will do that for you. So that's how
those two differ from a reporting and compliance perspective. Guys,
thanks for tuning in on this episode of SMSF Insider, where

(09:25):
we talked about industry funds versus SMSFs. Certainly as a
wrap, as a whole, or summarizing the episode,
certainly with an SMSF, you will have more investment options as
opposed to an industry super fund. Thanks for tuning in to this episode of
SMSF Insider. If you got value from this, make sure you subscribe so
you never miss the strategies we share to help you take control of your financial

(09:46):
future. Find us on socials at Blue Chip SMSF or