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Should I make the switch to a SMSF?

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I have been with a financial adviser for some time and he put me on something called a platform, which makes it easy for me to check my investments but recently it has not been great reading thanks to the GFC and the market crash.

I have about $320,000 in my super and put it into a self-managed super fund where I will have a mix of cash, term deposits and a portfolio of shares, which will be picked for their history of dividends. I have noticed that you have recommended this for people who want to be in the market but also want to reduce their risks. I am 45 years of age but still risk averse. I have been told that I could be up for a capital gains tax if I do the switch.

Overall I like your plan but you’re right — there could be capital gains tax and this happens when you switch from a platform with a financial institution, which has one trustee, to another which will be you inside your SMSF.

By the way, you can switch from, say, a retail fund to an industry fund and even to a SMSF without a capital gains tax event because you’re such a small fry in these big funds.

When you switch, the old fund will possibly, in theory, sell your shares but you could be replaced by more incoming people and so the shares won’t be sold at all. Of course, if everyone wants to leave the fund, they could face a big capital gains tax bill, which would be a loss reflected in their unit price.

In your case, if your fund has been going backwards there might not be a capital gain issue.

Obviously you have to look at the potential capital gain cost and the platform provider can alert you to this and then you need to do a cost benefit analysis on whether the switch is worth it. If you have a better strategy and you can save on annual costs, these factors need to be put into your cost benefit calculations.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Monday, March 19, 2012

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