SMSF: Weighing the Pros and Cons of Self-Managed Super Funds

Deciding whether a self-managed super fund (SMSF) is right for you depends on several factors and your individual financial circumstances. While SMSFs offer certain advantages, they also come with responsibilities and considerations. Here are some points to consider when assessing whether an SMSF is suitable for you:

1. Control and flexibility: With an SMSF, you have greater control over your investment choices compared to traditional super funds. You can invest in a wide range of assets, including shares, property, and managed funds, based on your investment strategy and risk tolerance. If you desire greater involvement in managing your retirement savings, an SMSF may be appealing.

2. Time and expertise: Managing an SMSF requires time, effort, and knowledge of superannuation rules and regulations. You or your appointed trustees are responsible for administrative tasks, compliance, investment decisions, and keeping accurate records. If you’re willing to dedicate time to stay informed and have the necessary expertise or are willing to seek professional advice, an SMSF might be suitable.

3. Cost considerations: SMSFs can be cost-effective for those with larger super balances. Traditional super funds typically charge a percentage-based fee, while SMSFs often have fixed costs. If you have a smaller balance, the expenses of establishing and maintaining an SMSF may outweigh the benefits.

4. Investment choices and diversification: SMSFs provide a broader range of investment options, allowing you to tailor your portfolio to your specific preferences. However, diversification is crucial to managing risk effectively. It’s essential to ensure your SMSF’s investments are adequately diversified to minimize exposure to individual assets or sectors.

5. Compliance and legal obligations: Operating an SMSF means adhering to superannuation laws and regulations set by the Australian Taxation Office (ATO). There are strict compliance requirements, reporting obligations, and penalties for non-compliance. It’s important to be aware of these responsibilities and ensure you can fulfill them.

6. Professional guidance: While SMSFs offer autonomy, seeking professional advice from accountants, financial advisors, or SMSF specialists can help navigate complex legal and investment matters. They can assist with establishing and managing your SMSF, ensuring compliance, and providing strategic guidance.

Ultimately, the decision to establish an SMSF should be based on a careful evaluation of your financial goals, knowledge, time commitment, and willingness to take on the associated responsibilities. It’s crucial to weigh the potential benefits against the costs and risks involved. Consulting with a qualified professional can help you determine whether an SMSF aligns with your retirement objectives and overall financial situation.

What Are The Costs Involved in an SMSF?

Setting up and maintaining a self-managed super fund (SMSF) involves various costs. Here are some common expenses associated with an SMSF:

1. Establishment costs: These include the initial expenses incurred when setting up your SMSF. They typically cover the trust deed, legal documentation, and professional advice from accountants or SMSF specialists. The establishment costs can vary depending on the complexity of your SMSF structure and the service provider you engage.

2. Regulatory fees: The Australian Taxation Office (ATO) imposes certain fees for SMSFs to maintain compliance. This includes the annual SMSF supervisory levy, which is a flat fee paid to the ATO to regulate the SMSF sector. The levy amount is determined by the ATO and may change each financial year.

3. Accounting and auditing fees: SMSFs are required to have their financial statements audited annually by an approved SMSF auditor. The auditor’s fees can vary depending on the complexity of your SMSF’s financial transactions and the auditor’s expertise. Additionally, you may need to engage an accountant or SMSF specialist to handle the ongoing accounting and tax obligations, which will incur additional fees.

4. Investment-related costs: These costs are associated with managing the investments held within the SMSF. They can include brokerage fees, custodian fees (if applicable), investment platform fees, and any other expenses related to investment transactions or advice received.

5. Insurance premiums: It’s essential to consider insurance coverage for members of your SMSF. This can include life insurance, total and permanent disability (TPD) insurance, and income protection insurance. The premiums for these policies will depend on factors such as age, health, and the level of coverage.

Administrative expenses: SMSFs have ongoing administrative expenses, such as bank account fees, legal fees for document amendments, postage and stationery, and software or technology costs to manage the fund’s administration.

It’s important to note that the costs of an SMSF can vary significantly depending on the complexity of the fund, the number of members, the investment strategy, and the service providers you engage. It’s advisable to consult with professional advisors or SMSF specialists to understand the specific costs involved in your situation and develop a budget for your SMSF’s ongoing expenses.

Pros and Cons of SMSF


  •  Control and flexibility: SMSFs provide greater control over investment decisions, allowing you to choose specific assets and investment strategies that align with your goals and risk tolerance. You can tailor your portfolio to your preferences and make adjustments as needed.
  •  Investment choice: With an SMSF, you have access to a wide range of investment options, including direct property, shares, managed funds, bonds, and cash. This flexibility can potentially lead to better diversification and the opportunity for higher returns.
  •  Cost efficiency: For individuals with larger superannuation balances, an SMSF can be cost-effective compared to traditional super funds. Traditional funds often charge a percentage-based fee, while SMSFs generally have fixed costs, which can be more favorable for larger balances.
  •  Tax planning and optimization: SMSFs offer potential tax advantages, as you have more control over tax planning strategies. You can make use of various tax concessions, deductions, and strategies to minimize tax liabilities both during the accumulation phase and in retirement.
  •  Estate planning: An SMSF allows for more flexible estate planning options. You can specify how your superannuation benefits should be distributed upon your death, ensuring they align with your wishes and the needs of your beneficiaries.


  •  Time and expertise: Managing an SMSF requires a significant amount of time, effort, and knowledge of superannuation rules and regulations. You or your trustees are responsible for administrative tasks, compliance, investment decisions, and record-keeping. If you lack the time or expertise, this can become burdensome.
  •  Responsibility and Compliance: SMSFs are subject to strict regulations and reporting requirements set by the Australian Taxation Office (ATO). Failure to comply with these obligations can result in penalties or the loss of your SMSF status. It’s important to stay up to date with regulatory changes and ensure compliance.
  •  Costs and fees: While SMSFs can be cost-effective for larger balances, they may not be as cost-efficient for smaller balances. Establishing and maintaining an SMSF involves various costs, including accounting, audit, legal, and administration fees. It’s important to consider these expenses and weigh them against potential benefits.
  •  Limited recourse borrowing: SMSFs have the option to borrow to invest in property or other assets, but this comes with additional risks. Limited recourse borrowing arrangements (LRBAs) can expose your SMSF to potential losses if the investment performs poorly or if the loan repayment obligations cannot be met.
  •  Lack of diversification: While SMSFs offer investment flexibility, there is a risk of inadequate diversification if you concentrate your investments on a single asset class or have limited investment knowledge. Proper diversification is crucial for managing risk effectively.

It’s important to carefully consider these pros and cons and assess your personal circumstances, goals, and willingness to take on the responsibilities associated with an SMSF. Seeking professional advice from accountants, financial advisors, or SMSF specialists is highly recommended to make an informed decision.

What Time & Skill Is Required To Run An SMSF?

Running a self-managed super fund (SMSF) requires a considerable amount of time and certain skills to fulfill the various responsibilities involved. Here’s an overview of the time and skills required to effectively manage an SMSF:

1. Time commitment: Managing an SMSF involves ongoing administrative tasks and investment monitoring. This includes tasks such as record-keeping, preparing financial statements, lodging annual returns, organizing audits, and complying with reporting requirements. The time required can vary depending on the complexity of your SMSF, the number of members, and the investment strategies employed. It’s important to allocate sufficient time to stay informed and fulfill these obligations.

2. Financial and investment knowledge: A good understanding of superannuation rules, regulations, and investment principles is crucial for managing an SMSF. You need to be familiar with the legislative requirements imposed by the Australian Taxation Office (ATO) and other regulatory bodies. Additionally, knowledge of investment concepts, asset classes, risk management, and portfolio diversification is important for making informed investment decisions. If you lack expertise in these areas, it may be beneficial to seek professional advice from accountants, financial advisors, or SMSF specialists.

3. Compliance and legal understanding: SMSFs are subject to strict compliance requirements set by the ATO. It’s essential to have a thorough understanding of the superannuation laws, reporting obligations, and regulatory changes that affect SMSFs. Failure to comply with these obligations can result in penalties or the loss of your SMSF status. Regularly keeping up with legislative updates and seeking professional guidance can help ensure compliance.

4. Investment management skills: As an SMSF trustee, you have the responsibility of managing and monitoring the fund’s investments. This involves assessing investment opportunities, conducting research, analysing risk, and making informed decisions based on your investment strategy and objectives. It’s important to have the ability to evaluate investment options, understand market trends, and implement appropriate risk management practices. If needed, you may engage investment advisors or professionals to assist with investment decisions.

5. Communication and organizational skills: Effective communication and organization are essential for managing an SMSF. As a trustee, you need to communicate with other trustees, members, service providers, and regulatory bodies. This includes holding trustee meetings, documenting decisions, maintaining accurate records, and coordinating with professionals such as accountants and auditors. Strong organizational skills are necessary to ensure all administrative tasks, compliance deadlines, and reporting obligations are met in a timely manner.

It’s worth noting that while managing an SMSF can be rewarding, it can also be complex and time-consuming. If you feel you don’t have the necessary time, expertise, or desire to take on these responsibilities, you may consider engaging professional services such as accountants, auditors, or SMSF administrators to assist you with the management of your SMSF.

<h4″>Can I Invest In Anything I Choose?

All financial investments by an SMSF are required to be done so on a commercial basis known as “arm’s length.” This means that the terms of the investment must be the same as those that you would offer to a complete stranger. Both the purchase price and the sale price of fund assets should always be at their actual (and verified) market worth, and the rate of return that is reflected in the income generated by fund assets should always reflect a real-world commercial rate of return.

With very few exceptions, a self-managed superannuation fund (SMSF) is not allowed to buy assets from a related party of the fund. The acquisition of the following is one of these limited circumstances:

• listed securities

• commercial real property

• units in widely-held unit trusts.

An SMSF also cannot lend money or provide financial assistance to a member or their relative. This includes non-arms-length dealings with a related party, loans, provision of a guarantee, and forgiveness of a debt. Often scams target SMSFs with the lure of purchasing a property and then renting it back to a family member at a cheaper cost – our advice is to avoid these as quickly as possible!

Final Thoughts

Establishing and running a self-managed super fund (SMSF) offers certain advantages and opportunities for individuals seeking greater control over their retirement savings. However, it also comes with responsibilities, time commitments, and the need for specific skills and knowledge.

The benefits of an SMSF include the flexibility to choose investment options, potential cost savings for larger balances, tax planning opportunities, and more extensive estate planning possibilities. SMSFs can provide a sense of autonomy and the ability to align investment strategies with individual preferences and risk tolerance.

On the other hand, the cons of an SMSF include the significant time and effort required to manage administrative tasks, comply with regulatory requirements, and stay updated on superannuation laws. The costs associated with establishing and maintaining an SMSF, especially for smaller balances, can also be a deterrent. Inadequate diversification, potential risks associated with borrowing for investments, and the need for specialized knowledge in financial and investment management are other considerations.

Ultimately, deciding whether an SMSF is right for you depends on your financial circumstances, goals, time availability, expertise, and willingness to assume the associated responsibilities. Seeking professional advice from accountants, financial advisors, or SMSF specialists is highly recommended to make an informed decision and ensure compliance with regulatory requirements.

Remember, the choice of managing an SMSF should be based on a thorough evaluation of the pros and cons, weighing the potential benefits against the costs and risks involved.