A self-managed super fund (SMSF) is a private superannuation fund that allows you to manage your retirement savings.   

Consider an SMSF as superannuation in ‘advanced’ mode, where you can choose to manage things yourself or seek expert advice to help you realise your wealth potential.  The goal is to grow your nest egg in a way that’s tailored to your needs.  

The latest stats from the Australian Taxation Office (ATO) show SMSFs are growing in popularity, with over 616,400 funds holding $932 billion in assets. However, SMSFs aren’t suitable for everyone as they come with responsibilities as well as opportunities. 

In this article, we explain what SMSFs are, how they differ from traditional super funds, their advantages, and what to consider before establishing one.  

What’s the difference between an SMSF and a traditional super fund?  

The key difference is control. 

With an SMSF, you decide how your retirement savings are invested. You can choose investments that match your values and financial goals, including assets such as property.  

Alternatively, traditional retail or industry superannuation funds are managed by professional organisations, and you don’t have as much input into the investment decisions. The fees to run these corporations can vary greatly and your returns depend on the fee structure. 

Another consideration is the degree of customisation and flexibility.  

An SMSF allows you to customise your retirement investing, but you’ll also need to actively manage the admin and compliance. Traditional funds take care of the details for you but offer less flexibility. 

Is an SMSF worth it for me? 

The SMSF decision requires careful consideration. It’s not a shortcut to faster returns but a serious commitment of time, expertise, and ongoing costs.   

There’s a real potential for greater investment control and tax benefits, but with that comes plenty of responsibility. Here are some of the pros and cons:  

Advantages of an SMSF  

  • Freedom to choose your investments: As long as your investment choices meet the regulations, you can include a broader range of investments, such as direct property and physical gold. 
  • Flexibility and control over how your fund operates: The fund can be managed in a way that suits the trustees’ needs and circumstances, as long as it meets ATO guidelines. 
  • Greater accountability: Since you’re more heavily involved in your investment portfolio, you can track performance and make specific and tailored changes when needed. If you’re with a traditional fund, you may be limited to altering your super’s broader investment profile (e.g. defensive, stable or growth).   

Disadvantages of an SMSF

  • Risk and responsibilities: As the trustee, you’re responsible for compliance, administration, insurance and all financial running costs. You’re the decision maker and liable for the outcomes of those decisions, even if you have an advisor or administrator helping to execute them. You also risk significant penalties if you fail to comply with super laws.  
  • Lack of available schemes to protect from fraud and theft: Unlike larger industry funds, SMSFs typically lack access to certain insurance and protection schemes. 
  • Residency requirements: You must permanently reside in Australia to be an SMSF trustee. 
  • Higher running costs: While running costs are generally fixed, they can also be higher than a traditional super fund if your super balance is too low. If your investment balance is small (a good rule of thumb is under $250,000), you may find the costs of an SMSF outweigh the benefits. 
  • Lack of access to discount insurance premiums:  As an SMSF trustee, you may not have access to certain discounted insurance premiums available to members of the big super funds. 

How much does it cost to set up and run an SMSF?

Unfortunately, this question has no quick answer as it depends on your circumstances.  

No matter which superannuation path you choose, there are costs involved. Traditional super funds have fewer upfront costs, but the fees and dividends can be difficult to understand. And in some cases, retail fund returns can be watered down by dividends paid to their shareholders. 

Comparatively, starting an SMSF can seem expensive, but over time, you’ll find greater transparency around where your investment goes and where the returns and fees end up.   

SMSF setup costs 

Even though SMSF running costs are generally fixed, you’ll likely need to engage an expert to help establish the fund.   

You’ll also need a reasonable amount of funds for your opening balance to establish the appropriate trustee structure and cover your initial investment and insurance. And you’ll need to cover fees relating to the legal documentation to establish the fund.  

Ongoing SMSF costs 

Once your SMSF is established, you’ll need to factor in the ongoing costs, including: 

  • investment costs (e.g. brokerage) 
  • account keeping and auditing 
  • legal and financial advice 
  • tax advice 
  • insurance costs.  

An SMSF professional can help determine if the long-term control and benefits outweigh the initial and recurring expenses. 

Can I have both an SMSF and an industry fund? 

The short answer is yes. Australian laws don’t prevent you from having both an SMSF and an industry super fund, so you’re not confined to one option.   

This might be a strategic choice to diversify investments, manage risks and optimise your retirement outcomes. Some of the benefits include: 

  • Diversification: Leveraging different investment strategies and protections offered by both fund types. 
  • Insurance options: Access to broader insurance coverage. 
  • Asset protection: Flexibility in asset types held across different fund structures. 

But while this might sound like the best of both worlds, it can be very expensive to cover the fees for both funds. It’s worth seeking professional advice to make sure the benefits outweigh the costs in your situation. 

What are my SMSF responsibilities as a trustee? 

As an SMSF trustee, you’re responsible for compliance, investment, administration and all related costs. 

SMSF regulations are subject to change, so you need to be aware of any changes to ensure your fund complies with tax and super laws. The ATO provides educational resources on its website, but we highly recommend engaging an SMSF expert to ensure nothing is lost in translation and you’re getting the best out of your fund. You’ll reap the benefits at tax time! 

How do I get the best out of my SMSF? 

Markets change, so you’ll need to start with a strong strategy and regularly review your fund’s performance – self-managed super is by no means a ‘set and forget’ option. 

If you’re time-poor, use software or engage a third party to keep you responsive to any changes in your portfolio so you can get better, more informed results. 

Administration takes time and energy and is less ‘fun’ than investing, but it’s equally necessary. Despite the ‘self-managed’ name, most trustees engage an SMSF specialist to look after the admin and compliance aspects so they can focus on the fund’s investment side.   

How Davidsons can help you with your self-managed super fund 

We all want to retire comfortably and without too much stress along the way. As you weigh the options and assess your suitability for self-management, make sure you seek out professional guidance so you can make an informed choice on what’s best for you. 

You get to decide, but we’re here to help and educate. 

Book an appointment with our SMSF specialists 

Our team of SMSF specialists are here to support you, either virtually or at our Geelong or Torquay offices.  

You can reach out to us by:   

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Disclaimer: The information provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals.