We get contact a lot with questions about Self Managed Super Funds (SMSF’s). What are they? How do they work? How can I set it up?

To help you along, we’ve put together a list of the main questions that we’re routinely asked and provided concise answers.

1. What is a self-managed super fund

A Self Managed Super Fund often referred to as an SMSF or DIY Super is a private superannuation fund whose members are also the Trustees of the fund, meaning that its management and control is in the hands of the members. It is for this reason that it is a viable option for many Australians who want more control over their retirement balances.

An SMSF gives members full autonomy over how their retirement savings are invested and they are often an attractive option as a result of poor performance in a retail or industry fund or in order to take advantage of the multiple investment options that exist within a self-managed fund that are not available in other fund types.

2. What Is the Difference between a SMSF and Public Offer Fund

The biggest difference between an SMSF and a Public Offer Fund like Industry and Retail funds are that an SMSFs trustees are also its members. This means that members of SMSFs have total control over where and how their Super balance is invested, but also total responsibility to ensure all of the legal obligations of the fund are met. Members of Public Offer funds, on the other hand, have very little say over how their Super balances are invested, which also means members have no strategic or management responsibilities. All Superannuation fund types have their advantages and disadvantages and the needs of the individual should be taken into account before deciding upon a specific option.

Other key differences between funds include which asset classes can be invested within and whether you can borrow money through your fund. Public Offer funds are relatively limited as far as how your contributions are invested with most funds not offering property investment or unlisted assets and is a large reason many Australians look to SMSFs for more diverse investment options. That being said some funds do offer varied options so investigating more thoroughly before settling in a fund will ensure you pick the right fund for you goals.

Another attractive feature of SMSFs is being able to borrow to purchase assets, which whilst some Public Offer funds may offer internally geared assets trustees of such funds do not borrow on behalf of members. It’s important to seek legal advice if looking to borrow within an SMSF to ensure all legal requirements and regulations are adhered to.

3. Setting Up an SMSF

Although you can set up an SMSF yourself, it’s advisable to seek professional assistance if you aren’t experienced in all the required elements. Experienced professionals such as a Financial Planner, Lawyer, Accountant and Property Advisor are recommended team members to ensure your fund performs as well as possible. 

Here is an overview of nine basic steps to setting up an SMSF. 

  1. Decide on your SMSF members
  2. Decide on the structure of your SMSF, whether an individual or corporate trustee
  3. Create the trust deed for your SMSF
  4. Apply for your ABN and register your SMSF with the ATO
  5. Set up the SMSF bank account
  6. Arrange an electronic service address and organise member contributions and rollovers
  7. Develop an investment strategy and execute initial investments
  8. Develop an exit strategy
  9. Appoint an Auditor, Administrator and Actuary as Required

It is extremely important that your SMSF is set up correctly as the legal responsibility falls onto the members. 

4. What Performs Better SMSF or Public Offer Fund

As a whole based on the most recent stats from the ATO which only goes up to 2016 SMSFs had an average return of 5.7% after fees and taxes were paid whilst APRA regulated funds for the same period returned 5.3%. However this data is arguably skewed but the fact that SMSFs with very low balances do not perform anywhere near as well as funds with larger balances. Therefore the type of fund that will bring you the best performance comes down to your Super balance and how the fund is run.

5. Who Can Benefit From an SMSF

An SMSF can offer some great benefits to its members including Asset protection against bankruptcy or creditor claims, increased tax flexibility and more control over where the funds balance is invested. Not everyone is going to be able to or need to take advantage of these features of an SMSF as it very much depends on your current circumstances and objectives. To find out if an SMSF is the right option for your retirement savings it is recommended to speak with a licensed and experienced professional who can assist you in determining the right play.

6. Is An SMSF Right For You?

A licensed professional should be involved before deciding whether or not an SMSF is right for you. Whilst there are many advantages in setting up an SMSF it also comes with increased responsibility and isn’t going to be right for everybody. You should ask yourself what it is you are hoping to achieve and if your current option can’t do that it may be worthwhile speaking to someone who can help you to develop an appropriate strategy. 

An SMSF comes with a number of responsibilities that do not exist in Public Offer funds. For an SMSF you mst develop an investment strategy, you need to have arrangements in place if anything happens to the members and you are responsible for organising your own insurances. 

7. How Much Do You Need to Set Up an SMSF

This is quite a contentious issue and has been keenly analysed by both the ATO and ASIC with there still be no concrete answer. The most important factor when considering if it is the right option for yourself is if the benefits will outweigh the costs as there are costs associated with the establishment and operation of an SMSF. The higher the balance of the SMSF the lower the % put towards expenses so for larger balances an SMSF is very often in members best interest but for funds with smaller balances the benefits need to be able to be justified to cover the higher expense ratio. ASIC’s recommendation is for Financial Advisors to not recommend an SMSF for balances below $200,000. 

8. SMSFs Investment Guide

When starting an SMSF it is a legal requirement that you have an investment strategy in place. Like any investment, qualified professionals with relevant experience should be consulted in the creation of your strategy unless you are sufficiently experienced yourself.

Investing through an SMSF can be a very attractive retirement vehicle but large penalties exist for not following legislation requirements correctly. All investments within an SMSF need to pass the Sole Purpose test meaning that they are for the sole purpose of providing retirement benefits for members.

When investing in assets for the fund you need to make sure it is done through the fund and not in your own name or another member’s name. This is both a legal requirement and also protects the assets in the case of member bankruptcy or creditor claims.

There are some restrictions on what your fund can invest in and breaches can lead to financial penalties or your fund losing its concessional tax treatment which would see tax rates increase from 15% to the highest marginal rate of 45%. Since 2011 rules around the purchasing of collectables or personal use assets cannot be stored in the private residence of any related party of the fund.

Investing in property and exotic investments such as Crypto-currencies, foreign currencies and commodities are allowed but have specific guidelines that need to be followed.

You can also borrow within an SMSF for the purpose of purchasing assets that pass the sole purpose test. Once again there are specific legal requirements and regulations that must be adhered to.

For more information on investing within your SMSF we recommend speaking to a licensed professional with experience in SMSF investing.


If you’d like to find out more about SMSF’s and set up a consultation with our Founder and one of Australia’s leading SMSF experts, Andrew Dear, you can do that via the button below.