Managing your own super comes with a lot of responsibility and involves significant time and effort. A self-managed super fund (SMSF) might be suitable if you have a lot of super and extensive knowledge of financial and legal matters.
You must understand your legal responsibilities and the investments you make because, even if you employ professionals to help you, you are still the one ultimately responsible.
An SMSF is a private superannuation fund, regulated by the Australian Taxation Office (ATO) that you manage yourself. SMSFs can have up to four members. All members must be trustees (or directors, if there is a corporate trustee) and are responsible for decisions made about the fund and compliance with relevant laws. Set up costs and annual running expenses can be high, so it’s most cost-effective if you have a large balance.
How do self-managed super funds work?
An SMSF is a legal tax structure whose sole purpose is to provide for your retirement. SMSFs operate under similar rules and restrictions as ordinary super funds.
When you run your own SMSF you must:
- carry out the role of trustee or director, which imposes important legal obligations on you
- set and follow an investment strategy that is appropriate for your risk tolerance and is likely to meet your retirement needs
- have the financial experience and skills to make sound investment decisions
- have enough time to research investments and manage the fund
- budget for ongoing expenses, such as professional accounting, tax, audit, legal and financial advice
- keep comprehensive records and arrange an annual audit by an approved SMSF auditor
- organise insurance, including income protection and total and permanent disability cover for super fund members
- use the money only to provide retirement benefits.
If you decide to set up an SMSF, you are personally liable for all the decisions made by the fund – even if you get help from a professional or another member makes the decision.
A professional who is licensed to provide SMSF advice can help you weigh up the pros and cons of running an SMSF and help you decide whether it’s right for you. They may also be able to help with the administration and investment decisions for your SMSF. But remember, you cannot pass on the responsibility of being a trustee or director, so you must understand what your adviser is doing.
Robo-advice and SMSFs
SMSF advice has traditionally been provided by an actual person but could also be provided by a robo-adviser. Robo-advice is financial advice that’s delivered by a computer instead of a physical financial adviser. It may be cheaper than seeing an adviser; however, there are limitations to what robo-advice software can do, and it may not be subject to the same quality controls and monitoring that advice from a real person would be.
Ongoing SMSF advice
The type of ongoing advice you choose will depend on your needs. For example, you might use a financial adviser or broker for investment advice and an accountant for the financial management of the fund.
SMSF advisers must be licensed to provide this type of advice. You can check by searching for their name on ASIC’s financial advisers register. You can find out more about the licensing of accountants on the ASIC website.
Find out what advice your adviser or accountant is licensed to give.