June 24, 2022

Pros & Cons of SMSF Set Up

A Self-Managed Super Fund (SMSF) is a private super fund that you manage yourself where you are able to choose the investments and the insurance. Whilst an SMSF can have no more than six members, most SMSFs have two or more. As a member, you are deemed a trustee of the fund, meaning you are responsible for the fund.

While establishing or opting for a SMSF sounds enticing for the control it provides over where exactly your Super is invested, on the flipside SMSFs involve a lot more time, effort and potentially risk, as all investments are managed by the members/trustees. Unfortunately, SMSFs are often also the targets of fraud and scammers. Here are a few elements (and their associated pros/cons) to consider before choosing to pursue a SMSF:

Time Demands

Aside from the initial setup, members need to continually research their investments.
It is important to create and follow an investment strategy that will help manage the SMSF – but this will need to be updated regularly depending on the performance of the SMSF. The accounting, record keeping and arranging of audits throughout the year also need to be conducted to a professional standard.

Data shows that SMSF trustees spend an average of 8 hours per month managing their SMSFs. This equates to more than 100 hours per year and demonstrates just how time consuming it is compared to other superannuation methods.

Set-up and Maintenance Costs

If you want the best out of your SMSF, it will require adequate set-up and maintenance… which comes at a cost. These costs include tax advice, financial advice, legal advice and hiring an accredited auditor.

A statistical review has shown that on average, the operating cost of an SMSF is $6,152. This data is inclusive of deductible and non-deductible expenses such as auditor fees, management and administration expenses etc., but not inclusive of costs such as investment and insurance expenses.

Knowledge and Skills

Investing in an SMSF requires trustees have a solid understanding of the investment market. Along with a breadth of financial and legal knowledge, Trustees need the associated skills so they can build and manage a diversified portfolio effectively. 

Furthermore, when creating an investment strategy, it is important to assess the risk and plan ahead for retirement, which can be difficult if a trustee is not equipped with the necessary knowledge. In terms of legal knowledge, complying with tax, super and other relevant regulations require a basic level of understanding at the very least. 

Finally, insurance for fund members also needs to be organised which can be difficult without additional knowledge.

SMSF Fraud Alert

The ATO has recently warned of an increase in SMSF identity fraud and scams targeting the retirement savings of individuals. This is something to be aware of if you’re looking to start or maintain an SMSF. 

Hear from us

Our monthly newsletter delivers only the best financial tips, straight to your inbox.

These fraudulent perpetrators use stolen identity information or cold call victims and present themselves as superannuation experts to harvest information. They typically offer superannuation comparisons and/or high-return investment options through the establishment of a fraudulent SMSF. It’s important to remain vigilant, do you own due diligence – if you are dealing with an advisor for the benefit of your SMSF, you can check if the advisor is listed on ASIC’s Professional registers or Moneysmart’s list of unlicensed companies you should not deal with.

In conclusion

Although SMSFs have the advantage of autonomy when it comes to investing, this comes at a price. Members/trustees need to invest time and money into managing the fund and on top of this, are required to have some financial and legal knowledge to successfully manage the fund. It is up to individuals to decide how the pros and cons sit within their context. If you’re considering an SMSF and would like some guidance on the above pros and cons, get in touch with our team of experts today to discuss how you can best manage your super!

Filed Under: Financial Awareness

Talk to a specialist, we’re good listeners

Need more from your accountant? Book a FREE strategy session today to see how we can help your business grow.

It’s time to build a better relationship with your finances (and your accountant)….