Is a self-managed super fund right for you?

Have you ever looked at the annual return from your retail or industry superannuation fund with disappointment, and the feeling you could have done better yourself?

Evidently, many Australians have felt the same way in recent years, as self-managed super funds (SMSFs) have continued to grow in popularity.

More than 1.1 million Australians were members of self-managed super funds at the end of March this year, as part of 590,742 SMSFs, while in 2012, there were 473,274 SMSFs with 899,024 members.

Roy Morgan recently found that SMSF trustees report significantly higher satisfaction with their fund’s financial performance than those with public sector, industry, or retail funds.

In July 2017, satisfaction with SMSFs was 73.8%, ahead of retail funds (58.7%) and industry funds (58.2%).

Those are broad-brush statistics, and the satisfaction rate varies depending on the size of the fund – unsurprisingly, the satisfaction rates with SMSFs were the highest at funds worth $700,000 or more. Nevertheless, SMSFs have maintained a clear lead in the Roy Morgan poll since it began in 2012.

The decision to move your superannuation into a self-managed fund is one that should be carefully considered. Below are several pros and cons to contemplate before making the switch.


  • Control – SMSFs give trustees control over investment choices relating to their retirement funds, and decisions can be made and executed instantly.
  • Flexibility – Self-managed funds provide flexible estate planning and investment options, including direct property, unlisted shares, artwork and other alternative investments.
  • Potential to increase returns – By managing your own superannuation you may outperform retail and industry super funds.
  • Potential to lower fees – SMSF administration fees are generally fixed, regardless of balance size, offering those with a large balance the potential to reduce their fees compared to a retail or industry fund.
  • Tax advantages – Powerful planning tools within the SMSF framework provide many strategies for tax minimisation. For example, assets that have significantly increased in value can be held until the fund enters pension phase at which point the gains are free of capital gains tax (up to the new $1.6 million limit).
  • Purchase expensive assets – A maximum of four people can be trustees of a single SMSF, allowing balances to be pooled to purchase expensive assets. Member balances can also be used as deposits when borrowing money to purchase investments.
  • Own commercial property – Commercial property offers secure tenancy and asset protection, is cost effective and can assist with succession planning. You can also rent the commercial property from your own business, at market value.


  • Expense – It is often recommended that you have a balance of at least $200,000 prior to establishing an SMSF, which is the point ASIC has found the most benefit for SMSFs over retail or super funds. Small funds may not be cost effective.
  • Time consuming – You must allow additional time to manage your SMSF. Even with retained advisors, trustees of the fund must take an active interest in its management.
  • Knowledge required – At a minimum, a basic understanding of sound investment practices is required, including fundamental financial tenets such as diversity, risk and return. Trustees should also understand that superannuation is to accumulate for your retirement, and cannot be accessed early (some exceptions apply).
  • Responsibility – Your fund must comply with Australian rules and regulations, and it is the trustees’ responsibility to ensure this is the case. You cannot leave all decisions to one dominant trustee, or to advisers.
  • Risks – Lack of diversity within a SMSF is a key risk for the trustees. For example, if the fund owns just a single property. Poor investment knowledge can put the fund at risk, as can a lack of understanding of legal requirements, which can lead to breaches. The personal relationships between trustees is also a risk, as people can lose interest, or fall out with their peers.
  • Non-compliance penalties – It is important to remember that the tax, financial and legal consequences for the trustees of a non-compliant SMSF can be severe. That is why it is essential for SMSF trustees to receive independent advice on the management of their fund.

Ultimately, making the switch from an industry or retail fund to an SMSF relies on your personal financial situation and the effort you’re willing to put into managing your finances.

Establishing an SMSF, like any financial decision, needs to rely on a sound understanding of your financial and tax position to determine if it will benefit you in the long term.

If you think an SMSF could be right for you, talk to our financial advisers at MWM Private Wealth today.

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