SMSF Pros and Cons: What to Consider Before Setting One Up
For some Australians, a self-managed super fund can provide greater control over how their retirement savings are invested and managed. It can open up investment choices, make it easier to coordinate a strategy between family members and allow a fund to be structured around specific long-term objectives.
But greater control also means greater responsibility.
An SMSF is not simply a super account with more investment options. It is a regulated superannuation fund that its members are responsible for running. The trustees must make the investment decisions, meet ongoing legal and reporting obligations and ensure the fund continues to serve the retirement interests of its members.
That is why the most useful question is not simply, “Can I establish an SMSF?” It is, “What are the pros and cons of an SMSF? Would an SMSF provide enough strategic value to justify the costs, work and responsibility involved?”
There is no single answer that applies to everyone. Understanding the potential benefits and limitations can help you decide whether an SMSF deserves a place in your broader wealth and retirement strategy.
What Is a Self-Managed Super Fund?
A self-managed super fund, commonly known as an SMSF, is a private superannuation fund managed by its members. An SMSF can have up to six members and, in most cases, each member must be either an individual trustee or a director of the company acting as corporate trustee.
Unlike an industry or retail super fund, the members are responsible for deciding how the fund is invested and ensuring it complies with superannuation and tax law. You can engage financial advisers, accountants, administrators, auditors and legal professionals to assist, but outsourcing these functions does not transfer the trustees’ ultimate legal responsibility.
This distinction is important. An SMSF offers control, but it does not remove regulation or allow members to use their super however they wish. The fund must be maintained for the core purpose of providing retirement benefits to its members, or benefits to their dependents if a member dies.
Why Do People Consider Setting Up an SMSF?
People are often drawn to SMSFs because they want more involvement in their retirement savings. Common motivations include:
greater control over investment selection and portfolio construction
access to investments that may not be readily available through their existing super fund
the ability to develop one coordinated investment strategy for a couple or family group
increased visibility over the assets held, fees paid and decisions made
greater control over the timing and management of retirement income strategies
the ability to integrate superannuation more closely with estate and succession planning
the potential to own eligible business premises through the fund, subject to strict rules
These can be legitimate reasons to explore an SMSF, but none of them automatically makes the structure suitable. Many retail and industry funds now offer extensive investment menus, direct investment options and competitively priced administration. The benefits of an SMSF therefore need to be assessed against the alternatives actually available to you.
What Are the Potential Pros and Cons of an SMSF?
Let's start by taking a look at some of the benefits of an SMSF:
Greater Control Over Investment Strategy
SMSF trustees decide how the fund’s assets are invested, within the restrictions imposed by superannuation law. This can allow the portfolio to be constructed around the members’ objectives, time horizons, risk tolerance and retirement plans.
Control may be particularly valuable when members have a clear investment philosophy or need to coordinate super with significant assets held outside the fund. It also makes it possible to look at the household’s overall position rather than treating each super account as a separate portfolio.
However, control and good decision-making are not the same thing. The value comes from having a disciplined investment strategy, appropriate diversification and a reliable review process, not simply from having a wider menu of assets.
Broader Investment Choice
Depending on the fund’s governing rules and investment strategy, an SMSF may be able to invest in assets such as listed securities, managed funds, term deposits, certain direct property and other eligible investments.
Every investment must comply with the relevant rules. Transactions generally need to be conducted on commercial terms, and restrictions apply to dealings with members, relatives and other related parties. Borrowing through an SMSF is also tightly restricted and can add significant cost and complexity.
A Coordinated Strategy for Couples and Families
An SMSF may have up to six members, which can allow a couple or family group to combine their superannuation assets within one fund. A larger combined pool may create opportunities for a more coordinated investment strategy and make certain investments more practical.
It also introduces shared responsibility. Members need to agree on investment decisions, risk, liquidity, costs and the future direction of the fund. Differences in age, retirement timing or financial priorities can complicate a strategy that initially appeared straightforward.
More Control During Retirement
An SMSF can support a tailored transition from accumulating super to drawing retirement income. Trustees may have more control over asset sales, cash reserves and the investments used to fund pension payments.
Liquidity becomes increasingly important as members approach retirement. A fund concentrated in property or other illiquid assets may have substantial value on paper but insufficient cash to meet pension payments, expenses or benefits when they fall due.
Closer Alignment With Estate and Succession Planning
Superannuation does not automatically pass through a Will. An SMSF’s trust deed, trustee structure, death benefit nominations and succession arrangements all influence how the fund is managed after a member loses capacity or dies.
An SMSF can provide useful planning flexibility, but poor documentation or an unsuitable trustee structure can also create uncertainty and conflict. The fund should therefore be considered alongside your broader estate planning, not treated as a separate exercise.
What Responsibilities Come With Managing an SMSF?
The responsibility of running the fund is often the most important difference between an SMSF and other forms of superannuation.
Developing and Reviewing an Investment Strategy
Trustees must create and implement an investment strategy for the fund and review it regularly. The strategy should address matters including risk and expected return, diversification, liquidity, the fund’s ability to pay benefits and whether insurance should be held for members.
A generic document prepared when the fund was established is not enough. The strategy should reflect the fund’s actual investments and evolve as member circumstances change.
Meeting Administrative and Reporting Obligations
Trustees are responsible for keeping appropriate records, maintaining accurate financial information, valuing assets, lodging the SMSF annual return and arranging an independent audit each year.
Professionals can help complete these tasks, but trustees must still understand what is being done and provide the information required. Missing records, late decisions or non-compliant transactions can create additional costs and expose trustees to penalties.
Complying With Investment Restrictions
SMSF investments must satisfy the fund’s sole purpose and comply with restrictions governing related parties, personal use, loans, financial assistance and borrowing.
Fund assets must be kept separate from the personal and business assets of members. An investment that appears commercially attractive may still be unsuitable if it creates a compliance problem, excessive concentration or insufficient liquidity.
Considering Insurance
Moving from an industry or retail fund into an SMSF may result in existing life, total and permanent disability or income protection cover being cancelled. Replacement cover may be more expensive, subject to exclusions or unavailable if a member’s health has changed.
Existing insurance should be reviewed before any rollover takes place. The SMSF’s investment strategy must also consider whether the fund should hold insurance for its members.
Remaining Legally Responsible
Appointing an accountant, administrator or financial adviser does not remove a trustee’s legal responsibilities. Trustees remain accountable for the operation of the fund and may also share responsibility for decisions made by their fellow trustees.
This makes the choice of co-members and trustee structure especially important. Everyone involved should understand their duties rather than assuming one family member or adviser will take care of everything.
How Much Super Do You Need To Start an SMSF?
There is no universal balance at which an SMSF automatically becomes appropriate.
Starting balance matters because many SMSF expenses are fixed dollar costs. The lower the fund balance, the greater the proportion of the fund that may be consumed by administration, audit, advice and other expenses. But balance is only one part of the assessment.
Other questions include:
What strategic benefit would the SMSF provide that your current fund cannot?
Will further contributions or rollovers increase the balance in the near future?
How will the total costs compare with your existing arrangements?
Do the proposed investments require an SMSF structure?
Will the fund remain sufficiently diversified and liquid?
How much time and expertise can the trustees contribute?
How long is the fund expected to remain in place?
What would it cost to restructure or wind up the fund later?
The decision should be supported by a comparison of realistic alternatives, not a generic minimum-balance rule.
What Does an SMSF Cost?
The cost of an SMSF varies according to its trustee structure, investments, number of members and the amount of professional support required.
Possible establishment and ongoing costs include:
fund establishment and legal documentation
setting up and maintaining a corporate trustee, if used
accounting and tax return preparation
an independent annual audit
the ATO supervisory levy
financial advice and investment management
administration and record keeping
brokerage, platform and investment costs
property, borrowing or valuation expenses, where relevant
insurance premiums
actuarial services in some circumstances
legal and professional costs associated with changes, disputes or winding up
Some costs are paid from the fund, which means they reduce the money available to invest for retirement. Costs should be assessed both as a dollar amount and as a percentage of the fund’s assets.
Price is not the only consideration. A low-cost SMSF that is poorly diversified, inadequately documented or taking inappropriate risks is not necessarily providing good value. Equally, paying for multiple professional services does not guarantee that the fund’s underlying strategy is suitable.
Can an SMSF Buy Property?
An SMSF can invest in certain property, but strict rules apply. Residential property held by an SMSF generally cannot be lived in, rented or used by a member or their related parties. Different provisions may apply to eligible business real property, but transactions and leases must satisfy the relevant requirements and generally need to occur on commercial terms.
Borrowing to buy property through an SMSF normally requires a limited recourse borrowing arrangement. These arrangements can involve additional legal, lending, valuation and administration costs. Borrowing also magnifies investment risk and can make it harder for the fund to remain diversified or maintain adequate liquidity.
Property should therefore be evaluated as part of the fund’s overall investment strategy. Establishing an SMSF solely because someone is promoting a particular property is a warning sign, especially if the promoter is pressuring you to act quickly or suggesting the investment carries little risk.
When Might an SMSF Be Suitable?
An SMSF may be worth considering when:
you have clear objectives that are difficult to achieve through your current super arrangements
the fund is expected to have sufficient scale to make its costs reasonable
you want greater involvement in investment decisions and understand the work involved
you and the other members can make decisions constructively
you have the time, knowledge and professional support required to fulfil your duties
the proposed strategy provides appropriate diversification and liquidity
you understand the consequences for insurance, retirement and estate planning
you have a workable succession and exit plan
These considerations still need to be assessed together. Meeting one or two does not necessarily mean an SMSF is the right structure.
When Might an SMSF Not Be the Right Choice?
An SMSF may be unsuitable when:
its main purpose is to access super early or use fund assets personally
the expected costs outweigh the likely strategic benefits
you do not have the time or willingness to participate in running the fund
one member will carry all the responsibility while others remain disengaged
the intended strategy would concentrate most of the fund in one asset
the fund would have insufficient cash to meet expenses and benefit payments
you are being encouraged to establish the fund primarily to buy a promoted property or investment
appropriate insurance would be lost or difficult to replace
the members’ objectives, ages or retirement timelines are incompatible
there is no clear plan for incapacity, death, relationship breakdown or winding up the fund
Sometimes the desired level of investment choice can be achieved through a suitable retail, industry or wrap-based super solution without creating a separate fund. Comparing these alternatives is an essential part of the decision.
What If You Already Have an SMSF?
The relevant question is not only whether to establish an SMSF. Existing funds should also be reviewed to determine whether they remain appropriate.
A fund that made sense ten years ago may no longer suit its members if:
the balance has reduced substantially
members are drawing larger retirement benefits
investments have become highly concentrated
one trustee is no longer willing or able to manage the fund
professional and administration costs have increased
the members have separated or developed conflicting objectives
estate planning documents and nominations have not kept pace with family changes
the fund’s investment performance and risk have not been reviewed properly
An SMSF review should consider more than compliance. It should ask whether the structure and investment strategy are still helping the members achieve their retirement objectives.
Who Can Help With an SMSF?
Different professionals perform different roles:
A licensed financial adviser can assess whether an SMSF is suitable, compare alternative strategies and advise on investments, contributions, insurance and retirement planning.
An accountant or SMSF administrator can assist with accounting records, financial statements, tax reporting and administration. The scope of advice they can provide depends on their licensing and authorisations.
An independent SMSF auditor examines the fund’s financial statements and compliance each year. The auditor must remain independent and cannot perform incompatible roles for the same fund.
A solicitor can advise on legal structures, trust deed provisions, succession, estate planning and other legal issues.
A coordinated professional team can reduce gaps and duplication, but trustees should still understand who is responsible for each part of the process.
Questions To Ask Before Establishing an SMSF
Before proceeding, ask:
What specific outcome would an SMSF help us achieve?
Could that outcome be achieved through a less complex super fund?
What will the fund cost to establish, operate and eventually wind up?
How much time will the trustees need to commit?
Do all proposed members understand and accept their responsibilities?
How will the portfolio be diversified and kept sufficiently liquid?
What insurance will be lost, retained or replaced?
What happens if a trustee becomes ill, loses capacity, dies or moves overseas?
How will disagreements between members be handled?
Who will provide financial, accounting, audit and legal support?
If the answers are vague, establishing the fund may be premature.
Is an SMSF Right for You?
An SMSF can be a valuable wealth-management structure for people who have clear objectives, sufficient scale and the willingness to accept the responsibilities involved. It can provide greater investment control and allow superannuation to be managed as part of a broader investment, retirement and estate strategy.
It can also become an expensive administrative burden if it is established without a compelling purpose or maintained after it has stopped serving its members well.
Before deciding, compare the proposed SMSF with the alternatives available through other super funds. Consider the complete picture: costs, investments, risk, insurance, liquidity, trustee responsibilities, retirement plans and succession.
Scion Private Wealth provides superannuation and SMSF advice in Brisbane, including SMSF suitability assessments, establishment guidance and ongoing investment strategy. We can help you understand whether an SMSF fits your wider financial position and coordinate with your accounting and legal professionals where required.
Contact our team to discuss your superannuation objectives and how we can help.
📩 Book a FREE 15 Minute Call 📞 (07) 3778 6800 🌐 www.scionprivatewealth.com.au
Frequently Asked Questions About SMSFs
Is an SMSF Worth Having?
An SMSF may be worthwhile when it provides meaningful investment or strategic benefits and its costs and responsibilities are reasonable for the members. It should be compared with suitable industry, retail and other super options before a decision is made.
How Much Money Do You Need To Start an SMSF?
There is no single balance that makes an SMSF suitable. A lower balance can make fixed costs proportionally more significant, but fund objectives, expected contributions, investment needs, trustee capability and the available alternatives should also be considered.
Can I Manage an SMSF Myself?
SMSF members are responsible for managing the fund as trustees or directors of a corporate trustee. You can engage professionals to help with administration, accounting, investments and legal matters, but the trustees retain ultimate legal responsibility for the fund.
Can an SMSF Buy Residential Property?
An SMSF may be able to buy residential property if the acquisition and investment comply with superannuation law. The property generally cannot be lived in, rented or used by a member or their related parties. Strict additional rules apply if the fund borrows to make the purchase.
What Are the Disadvantages of an SMSF?
Potential disadvantages include establishment and running costs, trustee workload, compliance obligations, investment risk, reduced access to certain compensation and complaint mechanisms, and additional complexity following illness, death, separation or a move overseas.
Do I Need a Financial Adviser To Set Up an SMSF?
Professional financial advice is not merely about completing the establishment paperwork. A licensed financial adviser can assess whether an SMSF is appropriate, explain the alternatives and advise on investments, insurance, contributions and retirement planning. Accountants, auditors and solicitors may also be needed for their respective areas of expertise.
This article contains general information only and does not take into account your objectives, financial situation or needs. Before acting on any information, consider its appropriateness for your circumstances and seek professional financial, tax and legal advice where required.
About The Author
Jaxon is the Managing Director and Private Wealth Adviser at Scion Private Wealth. He has 20 years of experience in superannuation, investment and financial planning, helping high-net-worth individuals and families coordinate their superannuation with their wider investment, retirement and wealth strategies. Jaxon is an Authorised Representative, No. 435782.
