Is an SMSF right for you?

3 min read
29/11/19 11:40 PM

Self-managed super funds (SMSFs) are a popular choice for Australians in their retirement planning.

Australian SMSFs held a total of $748 billion in assets as at 30 June 2019, making total assets held in SMSFs larger than those in either industry or retail funds, representing $719 billion and $626 billion in funds respectively.

Despite their popularity (there are over 600,000 already setup in Australia), self-managing your retirement savings will not be the right choice for everyone’s retirement planning.

It is important for you to carefully consider which is the most appropriate strategy for your individual circumstances.

A report by ASIC into SMSFs found that many people set-up an SMSF without fully understanding the time & cost involved and the restrictions imposed by it.

The Report identifies 8 ‘red flags’ which you are encouraged to reflect on when deciding if a SMSF is right for you.

These are:

1.    The person has a low superannuation balance, and would have a limited ability to make future contributions;

2.    The person wants a simple superannuation solution;

3.    The person wants to delegate all of the running of the SMSF to a paid advice-provider;

4.    The person wants to delegate all of the investment decision making to someone else;

5.    The person does not have a lot of time to devote to managing their financial affairs;

6.    The person has little experience making investment decisions;

7.    The person has a low level of financial literacy.


Fleshing these out, it’s important to see if you have the time to manage the fund and take care of the significant administrative tasks which generally take much more time than anticipated. Watching over investments, discussing strategies with stakeholders, liaising with accountants, property managers and bankers – together adds up significant personal time.

Performance is naturally critical, and to justify the time and effort required to effectively manage an SMSF, your fund should perform better than industry benchmarks and the investment professionals who analyse assets day in, day out.

Standard duties when managing an investment portfolio including monitoring your investment strategy, researching options, keeping abreast of performance and adapting, organising valuations, staying on top of reporting and keeping up-to-date with the latest change’s superannuation laws affecting your trustee responsibilities. While you can outsource many of these tasks to a professional provider, it is important to understand that you are responsible and will be held accountable for compliance of your SMSF with the rules and regulations. You can delegate the duties but not the responsibilities.

Ultimately the question may come down to, do you have enough super to reasonably justify the setup cost and ongoing management costs of an SMSF. While there is no minimum balance required by law, it’s important to note that those fixed costs (administration and audit fees), as a percentage of the balance, will decrease as the balance increases. The Rice Warner report, ‘Costs of Operating SMSFs ASIC’ states a balance of less than $100,000 is unlikely to be competitive in cost comparison against industry and retail funds. Over $100,000 may be competitive, but only if administrative and investment costs are minimised. Over $500,000 is generally the ideal territory to be in for management of an SMSF. As a useful rule of thumb, if your expected annual costs are less than 2% of your super balance then that is when a SMSF may be worthwhile.

As we see, there is a lot to think about when considering an SMSF option for your retirement planning. Before moving forward too quickly, it’s important to note each of these flags and considerations in relation to your personal circumstances to make sure you choose the best option for yourself and your family.

With a strong correlation between the size of a SMSF and the return on investment experienced, members with lower balances see better returns in either an industry or retail superannuation fund.

For more information, contact our team on 1300 926 626