What is a self managed super fund

As the name suggests, a self-managed super fund (SMSF) as it’s known in the financial world,  is a type of superannuation fund that you manage yourself rather than relying on a professional fund manager. The primary benefit of an SMSF is it allows you to have complete control over how your retirement savings are invested and managed. Having this level of control is exciting for some and frightening for others.  And you’re probably thinking right now – “I would love to control where my superannuation money is invested but do I have the knowledge and really what do I know about investing?” 

Most Australians are currently committed to a retail or industry super fund via their employment. Over the past twenty years, it has become increasingly common for individuals seeking more control over their superannuation to enter into a self-managed super fund (SMSF). As a professional financial advisor, in this article, I aim to provide you with an understanding of SMSFs, their benefits, and who might find them most advantageous.

SMSFs offer increased control, greater opportunity to grow your retirement wealth, and potential tax benefits. However, they also come with greater responsibilities and risks.  Establishing and managing an SMSF involves various costs, including financial advice, legal fees, and accounting expenses. Before entering into an SMSF you need to be fully aware of the potential out-of-pocket costs and have sufficient budgetary oversight to manage the additional fees.

Managing an SMSF requires a significant time investment. It requires regular investment decisions, compliance and regulatory responsibilities. You must ensure you’re committed to the process and have a knack and the time for paperwork.

All SMSFs must be registered with the ATO. This process includes appointing trustees, obtaining an Australian Business Number (ABN), and opening a dedicated bank account. It is highly recommended that you meet with a licensed financial advisor before starting the process.

Before starting an SMSF, ask yourself, do I know about financial markets, asset classes, and investment strategies to make quality financial decisions?  This includes the ability to analyse market trends, evaluate investment opportunities, and make informed decisions about asset allocation. Do I have the skills to manage a diversified portfolio to balance risk and sufficient knowledge of investment vehicles such as shares, real estate, and alternative assets like art or cryptocurrency?

Am I proficient in maintaining accurate financial records, preparing annual financial statements, and meeting auditing requirements to ensure compliance and avoid penalties? Do I have access to a professional and qualified financial advisor who can ensure my SMSF is managed correctly and will benefit me in the long run?

While financial professionals fill many of these gaps, these questions are fundamental to the success of a SMSF.

So, we’ve walked through the considerations, and on paper, they can seem a reasonable roadblock. However, there are many reasons why an SMSF is a wise and savvy option.

One of an SMSF’s most significant benefits is its enhanced control. Trustees of an SMSF have complete authority over investment decisions, allowing them to tailor their portfolio to their specific financial goals and risk tolerance. Unlike retail or industry funds, SMSFs enable investments in a broader range of assets, including direct property, shares, and even collectibles such as art, wine, and cryptocurrencies. This flexibility allows the potential for more lucrative investment strategies.

SMSFs offer a cost-benefit compared to a retail or industry super fund for high-wealth individuals. As the fund balance grows, the relative cost of managing an SMSF decreases compared to the fees charged by retail and industry funds. Potential cost savings can be significant over time for those with substantial superannuation balances.

Trustees can implement tax-effective strategies, such as managing the timing of capital gains and losses and taking advantage of concessional and non-concessional contributions to optimise tax outcomes. An SMSFs can provide greater flexibility in estate planning, allowing trustees to tailor death benefit nominations and succession plans to ensure a smooth transfer of wealth to beneficiaries.

Another popular benefit of SMSFs is membership.  An SMSF can have up to six members, allowing family members to consolidate their superannuation savings into one fund. This can simplify family wealth management, provide economies of scale, and enable a cohesive investment strategy aligned with the family’s financial goals.

While SMSFs offer some enticing benefits, they are not suitable for everyone. Individuals who might find an SMSF advantageous include those with substantial assets seeking greater flexibility in investment choices and see the potential in investment diversification. They are particularly beneficial for business owners who own their business premises. This allows them to integrate their business and superannuation strategies, potentially providing tax benefits and streamlining asset management.

Individuals with a strong understanding of financial markets and investment strategies may prefer an SMSF. The ability to invest in a wide range of assets can be a significant draw for savvy investors.

Are they worth it? Australia has an estimated 1.146 million SMSF members, and the average SMSF member holds around $797,294. The Association of Superannuation Funds (ASFA) notes that the retirement standard for a comfortable retirement at 67 years of age is $595,000 for a single person or $690,000 for a couple, illustrating the performance and value of SMSFs, which has a significant upside.

A Self-Managed Super Fund (SMSF) offers members control, investment flexibility, and strategic tax management. High-wealth individuals and business owners can find SMSFs particularly cost-effective and advantageous. The ability to invest in diverse assets and integrate business premises into the fund has the potential to boost retirement savings. However, managing an SMSF requires financial knowledge, time, and commitment. It’s important to understand the responsibilities and regulatory requirements involved. Consulting with a licensed financial advisor can help determine if an SMSF is right for your financial goals, risk tolerance, and capabilities.

North Advisory Wealth specialises in SMSF Management, wealth management, superannuation, and estate planning. If you’re considering an SMSF, contact our team today for a no-obligation discussion.