Pros of Self-Managed Super Funds (SMSFs)

1. Control and Flexibility

• You make the investment decisions, choosing where and how to invest your superannuation funds.
• Flexibility to diversify into a wide range of asset classes, including direct property, shares, managed funds and even collectibles.

2. Tailored Investment Strategy

• Ability to align investments with personal goals and risk tolerance.
• Can create a strategy to suit the members’ circumstances, such as borrowing to invest in property (via limited recourse borrowing arrangements).

3. Tax Advantages

• Opportunity to minimise tax through effective strategies, such as pension-phase investments being tax-free.
• Control over the timing of asset sales to optimise capital gains tax outcomes.

4. Cost Benefits (for larger balances)

• Fixed costs like administration fees and auditing can be proportionally cheaper for higher superannuation balances, making it more cost-effective.

5. Family Fund Option

• Up to six members can pool resources, which may lower fees and enable a more substantial investment portfolio. (Note: all members must be Trustees, or if a Corporate Trustee is used, must all be Directors)

6. Estate Planning

• Greater control over the distribution of benefits to beneficiaries after death.

Cons of Self-Managed Super Funds (SMSFs)

1. Time-Consuming

• Managing an SMSF requires significant time for administration, compliance, and investment management.

2. Complex Regulations

• Must comply with strict Australian Taxation Office (ATO) rules and superannuation laws.
• Non-compliance can lead to severe penalties or loss of tax concessions.

3. Costs (for smaller balances)

• Fixed costs can be disproportionately high for smaller balances, reducing cost-effectiveness compared to retail or industry super funds.

4. Responsibility and Risk

• Trustees are responsible for all investment and compliance decisions.
• Poor investment choices or lack of diversification can result in financial losses.

5. Knowledge and Expertise

• Requires a good understanding of investing, tax laws, and superannuation rules.
• Often necessitates advice from financial and legal professionals, which can add to the cost.

6. Limited Consumer Protections

• Self-Managed Super Funds (SMSFs) do not have access to the compensation schemes available to members of APRA-regulated funds in the event of fraud or theft.

7. Liquidity Issues

• Investments like property may create liquidity challenges, particularly when funds are needed for pension payments or member withdrawals.

8. Ongoing Responsibilities

• Trustees are responsible for arranging financial statements, an independent audit, and lodge an annual return with the ATO.
• Penalties for non-compliance are strict and may result in personal liability.

Who Should Consider an SMSF?

• Those with a high superannuation balance (generally $200,000+ is considered cost-effective).
• Individuals who have the time, interest, and expertise to manage their super.
• Investors seeking control over their portfolio and willing to bear the responsibility for compliance.

Who Should Avoid SMSFs?

• People with low balances where costs outweigh benefits.
• Individuals who lack the expertise or time to manage their superannuation effectively.
• Those uncomfortable with complex compliance and regulatory requirements.

Did you know?

SMSFs provide trustees with the flexibility to explore various investment options, including managed funds. For instance, Rhodes Asset Management has a Premium Income Fund (PIF), offering a regulated investment opportunity with consistent returns. The fund currently returns between 8.2% and 9.2% p.a.* SMSF trustees may consider funds like the PIF as part of their diversified investment strategy, depending on their goals and risk tolerance. It is a good idea to consult with a licensed financial adviser to ensure compliance with SMSF regulations and suitability for your circumstances.

*Terms & conditions apply. There are two retail investment subclasses in the Premium Income Fund: Enhanced and Standard.

^ Wholesale-A subclass – This is only available to qualifying wholesale investors. Please contact us for further details. ​

Please note that past performance is not a reliable indicator of future performance. This investment is not a bank deposit and carries risk.