Super wrap accounts offer a compelling alternative between pooled funds and SMSFs

For many clients, the desire to have more transparency and control over their superannuation tends to surface in their 40s and 50s, as balances grow and retirement starts to become more tangible. The conversation often turns quickly to whether a self-managed super fund is the right next step, along with the trustee duties that come with one.

Lindzi Caputo, wealth management partner at HLB Mann Judd Sydney, says an individual super wrap account could offer another option for Australians. It suits those who want more control over their superannuation without setting up an SMSF.

An individual super wrap account sits inside the super system and gives each member their own investment portfolio rather than a share of a pooled fund. Individuals can see exactly what they own and tailor their holdings to their own preferences and worldviews.

“For many Australians, an SMSF can seem like the natural next step when they want greater control over their investments. But it’s not the only option,” Caputo says.

The options

Retail super funds are pooled funds with different levels of risk, in which members invest alongside thousands of other people. The firm says they are typically low cost and simple. SMSFs suit people with larger balances, often more than $1 million. These members want to use more tailored strategies or combine their super with a spouse or others.

“For many people, a retail solution works well. But as their circumstances change, they may want greater visibility over what they own and more say in how their super is invested,” Caputo says.

For those who do take the SMSF route, Caputo points to the administrative load that comes with that decision.

“With an SMSF, greater control comes with greater responsibility. Trustees are responsible for complying with superannuation legislation, maintaining records, preparing financial statements, arranging audits and ensuring the fund continues to meet its regulatory obligations.”

Flexibility

Alongside flexibility, Caputo sees tax as one of the main attractions of the wrap structure.

“In addition to greater flexibility, an individual super wrap account can offer significant tax benefits. Franking credits are added directly to the member’s account, where they can help offset tax in the accumulation phase or, for members in the pension phase, may be refunded.”

She also believes the structure suits clients who want to take a more active approach as markets fluctuate.

“A set-and-forget approach may not always be enough to protect and grow your wealth as markets change,” Caputo says. “An individual super wrap can give investors greater flexibility to respond as markets change and take advantage of opportunities as they emerge.”

The adviser’s role

The adviser sits at the centre of the arrangement, and Caputo is clear about the trade-off involved.

“A super wrap account does require a financial adviser, which adds a cost compared with a simple retail fund. But it often avoids the set-up costs, ongoing administration and trustee obligations that come with running an SMSF,” she says.

According to Caputo, an adviser can help clients take greater control of their super. An adviser can also help them build a long-term strategy around tax, investments and distributions.

For clients starting to think about retirement, she says acting early can make a significant difference to their retirement choices and lifestyle. She suggests setting a target such as building a super balance towards $2.1 million by age 65.

“For some people, a super wrap account can provide much of the flexibility and transparency they’re looking for, without taking on the responsibilities of running their own super fund.”

When clients raise the prospect of an SMSF, the individual wrap gives advisers another structure to put on the table. It offers a tailored portfolio and clear visibility of holdings while remaining within the broader super system.