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Pros And Cons Of Self-Managed Super Funds (SMSF)

A good number of Australians have set up Self-Managed Super Funds (SMSFs) to control their retirement savings. The advantages of this approach depend on your circumstances, abilities, and inclination but are particularly appealing to pre-retirees. Maintaining a SMSF requires extensive financial and legal knowledge, which is why competent financial advice is still needed.  

What Is A Self-Managed Super Fund?

SMSFs are a private superannuation fund that you manage yourself. It can have up to 6 members, all of who must be directors or trustees. The members are responsible for all decisions of the fund and compliance with the relevant laws. SMSFs are regulated by the Australian Taxation Office. SMSFs operate under the same regulations as retail super funds, with you taking a much more active role towards your retirement savings.

What Are The Requirements For Setting Up A Self-Managed Super Fund?

The money is for the sole purpose of retirement and you must:

  • Keep comprehensive records and submit to a SMSF approved auditor
  • Have the financial skills to make the required appropriate decisions
  • Follow an investment path with acceptable risk tolerances
  • Be ready to play the role of a trustee with the responsibility of making decisions that have legal implications
  • Be ready to spend time researching investment opportunities
  • Consider insurance including life cover, income protection and disability cover for the fund members

Pros Of A Self-Managed Super Fund


The members of an SMSF have complete control over their fund. This means that they decide the investment path the fund will take. This can be crucial when deciding to take advantage of new opportunities that otherwise seem risky for ordinary super funds. You can decide to invest in a wide range of assets including securities, managed funds, fixed interest investments, residential and commercial property, just to name a few.

Quicker Decision Making

Making quick decisions can make a lot of difference in the performance of a fund. Decisions can be made quickly to invest in profitable trends, and equally made to get out of losing trends.

Lower Costs For Bigger Funds

Running your own SMSF can provide the benefit of lower ongoing costs. The estimated operating expense ratio on SMF is at 0.5 per cent. However, the ATO[1] explains that the bigger the fund, the lower the operating cost ratio.

Cons Of A Self- Managed Super Fund


Researching suitable investment paths takes a lot of time. Running the SMSF is a continuously engaging affair since you must keep tabs on your investment’s performance.

Financial And Legal Risks In Decision Making

For SMSF members without a background in finance and tax, setting up and managing an SMSF can be quite a challenge. Poor decision making could lead to financial and legal consequences, especially in matters of taxation.

Inability To Access Government Compensation Schemes

SMSFs cannot access government compensation schemes in case money is lost for various reasons including those outside the control of the trustees.

Reduced Access To Dispute Resolution Bodies

SMSFs have limited access to dispute resolution bodies meaning that the fund is at risk of damaging consequences if the directors / trustees are not able to access competent legal aid. Resolving disputes through conventional courts imply higher costs for an SMSF. 

The Importance Of Ongoing Financial Advice

It is crucial that a SMSF access sound financial advice. It is highly recommended that you seek the services of a financial planner before deciding to set one up. The advisor will outline the risks involved in running a SMSF. After setting up a SMSF, a financial planner can assist in the administration investment decisions of the fund. However, it is important to note that a financial advisor only makes recommendations and the responsibility of executing those rests on the trustees.

It is important to use an experience financial adviser for the following reasons:

Better Quality Investment Research

A financial advisor can help identify investment opportunities that SMSF members are overlooking. The advisor can also help filter through several investment choices for the one that is suitable based on your goals and objectives.

Avoiding Financial And Legal Pitfalls

For SMSF members without adequate financial and legal skills, a financial advisor is helpful in minimising risks. The advisor can make recommendations on things like taxation, membership, financial compliance and so on.

Easier Day To Day Administration

It is possible to delegate authority to a financial advisor to make transactions on your behalf. This can relieve the SMSF members from the pressure of day to day management tasks and keep tabs on various investments.

The decision to put your superannuation into a SMSF is not one which should be taken lightly. You should seek advice from a Financial Planner. With their help you can weigh up the pros and cons of SMSFs and work out if starting one would suit your needs. Contact Elliot Watson Financial Planning today to discuss your superannuation needs on 02 40381623.


The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. The views expressed in this publication are solely those of the author; they are not reflective or indicative of licensee’s position, and are not to be attributed to the licensee. They cannot be reproduced in any form without the express written consent of the author. Elliot Watson Financial Planning Pty Ltd and its advisers are Authorised Representatives of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.

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