What is a self-managed super fund?

A self-managed super fund, or SMSF, is an ATO-approved super scheme that is established for the sole purpose of providing retirement benefits to the members of the SMSF. A SMSF can have between 1 and 6 members. Generally, all members of SMSFs must be trustees and are legally responsible for the running of the fund. The trustees of SMSFs are personally responsible to ensure the fund is run properly and that it is run in the best financial interests of all members of the fund. Over 68% of SMSF’s[RW1]  have only two members and most of the remaining have only one member.

There are strict annual reporting and other legal requirements that all the member trustees must abide by, including the valuation of assets, appointing an auditor, making an annual statement to members and providing and annual return to the ATO. Even where professional expertise is provided, the trustee members are personally responsible and must ensure these and other obligations are followed. 
The rules and regulations are set down by the ATO to maintain the integrity of the scheme and define what you can invest in, how and when you can access any investment returns and the information and external audits that you need to provide to the ATO.

Is a self-managed super fund right for me?

While having control over your own super may sound appealing, it is not for everyone as recent statistics show – for the year ended June 2024 ATO data shows that 33,019 SMSFs were established, however 13,210 were also wound up.

The trustees of an SMSF must have the knowledge and skills to run the fund, including teh development and application of a compliant investment strategy. It should be remembered that SMSFs do not receive government backing or assistance that other regulated funds may receive in the event of fraud or theft. 

The results from an SMSF, compared to a normal super fund, are dependent on a number of factors, including financial expertise, time, and initial deposit. Generally, the lower the balance in an SMSF, the harder it is to make a good return.

What is involved in an SMSF?

The ATO has strict requirements for setting up and running an SMSF, such as drafting trust deeds, choosing trustee structures, the assets the fund can invest in, and what sort of reporting needs to be done. Then of course there’s the researching, buying, holding, and selling of investment assets.

So, to be successful, you’ll need to have a solid understanding of both how to fulfill the SMSF obligations and how to make sound investment decisions.

Alternatively, there are professional SMSF managers who can provide advice and administer the fund for you, but their fees do add to the costs of running an SMSF.

Tips for success with an SMSF

If you decide that an SMSF is the better option for you, these simple tips could help you make the most of your DIY efforts.

1. Know what you’re doing or be prepared to learn. Managing an SMSF can be difficult and full of confusing obligations. You will either need to have a good understanding of how to meet all the legalobligations, be willing to learn, or be comfortable paying professionals to do the work for you. Those professional fees can soon add up and, year after year, the costs of running your SMSF can turn out to be more expensive than if you invested your money in a regular super fund.
2. Start with a big enough balance. An opening balance of at least $200,000 is often cited as the minimum needed for an SMSF to be competitive. The evidence is that the smaller the balance the lower the return on investment.
3. Engage professionals. An experienced SMSF manager can assist with running the operations of your fund, while a licensed investment advisor can help you plan a sound investment strategy. Of course, both come at a cost. Do appropriate checks on any professional you hire. Your life savings can literally be in their hands.
4. Have an efficient system for managing records and documents. You need to be prepared to show that all your investment decisions and reporting obligations are within the ATO’s rules for self-managed super funds. It’s vital that your SMSF administration is systematic.
5. Meet with trustees regularly. Trustees can be individuals or a corporate trustee body (with separate rules governing each type), and since it’s the trustees who are in charge of the SMSF, then it’s important they meet with each other regularly.
6. Review investment strategies periodically. Circumstances change, whether that’s the personal circumstances of the members or wider economic conditions. Therefore, trustees should schedule regular reviews into the investment strategies and holdings to ensure they continue to align with the members’ objectives, years to their retirement, and risk profile.

References
SMSF overview - Moneysmart
SMSF statistics - ATO
Set up requirements - ATO