A self-managed super fund (SMSF) allows up to four people to pool their super and take full control and responsibility for managing it as trustees. The sole purpose of the SMSF is to provide benefits to its members on their retirement.

Super popular!
Today, SMSFs represent about a third of all the money invested in all Australian superannuation funds. And there are more than half a million SMSFs in Australia, representing more than one million individual members.*

Why are they so popular?
The popularity of SMSFs can generally be put down to the greater control and flexibility they offer. Here are some key advantages:

  • Investment control: the members/trustees can choose their own fund investments, including shares, property, cash and many others (within legislative limits).
  • Flexibility: trustees can make their own decisions as a result of changing market movements and options for retirement income streams.
  • Family first: a SMSF is a true inter-generational wealth accumulation and wealth transfer vehicle. There is no legal time limit on how long a SMSF can last – it can keep going for generations.
  • Fee savings: the SMSF fee structure may deliver substantial savings when compared to other retail super funds.
  • Creditor protection: a member’s fund assets are normally protected from creditors in the event of bankruptcy.
  • Tax effective: generally super lump sums are tax-free to members who are over 60, which is a huge benefit during their retirement, especially compared to other non-super investment structures.

Will an SMSF suit you?
Running an SMSF is not for everyone. There are trustee responsibility and time commitment factors you should consider.As a trustee, you’ll need to design, implement and actively monitor an investment strategy that:

  • protects members’ retirement benefits;
  • minimises the risk of irresponsible/incompetent investments; and
  • meets your stated SMSF investment objective.

Your financial adviser can help you with this part, but you’ll need to be ready and able to take on board the following things by yourself:

  • Time commitment: Running an SMSF can be time-consuming for trustees; this can be aided if you choose to use a specialist, daily-managed administration service.
  • Risk of penalties: Non-compliance with legislation and rules can mean significant tax penalties on the fund and potential prosecution, for extreme breaches.
  • Balancing act: Ongoing costs to operate an SMSF e.g. mandatory annual audit costs, can be uneconomic for members with balances less than $200,000 (refer to page 2 for more).
  • More responsibility: The ultimate legal responsibility rests with you and any other trustees in your fund, even if assistance has been sought from other professionals e.g. auditors or registered tax agents.
  • No ‘captain’s calls’: All members need to agree on investment decisions; if you take action outside of that agreed by all parties, you risk being sued by your fellow trustees.
  • For love, not money: As a trustee you can’t be paid for running your SMSF, nor can you be an employee of another trustee (unless they’re family).

What does it cost to run?
It is important you take the time to understand the cost incurred to operating your SMSF in order to ensure it is economically viable to run. There are generally two types of costs – set-up costs and ongoing operating expenses (including your personal time).

1. Set-up costs
These can vary quite a bit, depending upon how you go about it. You’ll pay a bit more to set-up an SMSF if you also seek financial advice and/or a financial plan, but this is a smart move, especially if you’re a relatively inexperienced investor.

2. Operating expenses
According to the ATO, around two-thirds of SMSFs have an estimated operating expense ratio of 1% of fund assets or less.*

So on a $500,000 account balance, an expense ratio of 1% equates to $5,000 in annual fees. Many operating expenses are fixed – and mandatory – for example, annual audits, preparation of accounts and the ATO supervisory levy.

Of course, as a fund balance grows, these fixed expenses become a lesser percentage with less impact.

Personal time commitment
Of course you’ll also need to factor in the cost of your personal time in managing the fund. This can vary, depending upon how much of the management you outsource to professionals and how much investment research and active investment management you want to do.

Time commitment can vary from a few hours per month, up to a number of days per month, depending on how involved you want to be with investment and other decisions that need to be made for your fund.

What can an SMSF invest in?
The three most popular investment classes for SMSF trustees are direct shares, cash and direct property.

As at December 2014, these three asset categories represented 76% of all SMSF assets.* 32% of fund assets in direct Australian shares, 28% in cash and term deposits, and 16% in direct property.

The rules
SMSF investments must be for the ‘sole purpose’ of providing retirement benefits for the members of the fund. Members, relatives or associates of the trustees must not gain any immediate benefit from the fund’s assets or activities.

For example, any property owned by the fund cannot be used by the members or their families, even if rented out at market rental.

Other rules include:

  • SMSFs can only borrow money in limited circumstances;
  • SMSFs must limit investments in, or loans to, ‘related parties’ to 5% of the market value of the fund; and
  • Generally, SMSFs cannot buy assets from a member, or a relative or associate of a member, except in limited circumstances such as with business real property, listed securities and managed funds.

However, SMSFs have the added benefit of being able to invest in all the major asset classes offered by regular super funds – with the addition of direct real property and personal collectibles.

How can a financial adviser help?
Setting up your SMSF properly is critical. If you get this wrong, it can create a lot of issues down the track that can be expensive to fix.

An SMSF-accredited financial adviser can help you chart the most appropriate course of action with your SMSF; from how to best structure your SMSF to the most appropriate investment and wealth protection strategies for you and your fellow SMSF members.

Want more information
There are lots of advantages to managing your super and retirement savings via a self-managed super fund, but there can be complicated areas and considerations that are best addressed with SMSF-specialist advice. So please talk to your SMSF financial adviser for specific information related to your SMSF needs.

* Self-managed super funds: A statistical overview 2012-13,
Australian Taxation Office.


We are ready to help. We are equipped with the knowledge and expertise to help you get the most out of your SMSF, by showing you how to set up and develop a sound investment strategy that reflects your needs. We can work with other professional services to create and manage a super fund that puts you on a clear route.

Contact BlueRocke on 1 300 71 71 36 today.