Self-Managed Super Fund (SMSF) Explained

Self-Managed Super Fund (SMSF) Explained

A self-managed super fund or SMSF is a private retirement fund controlled by the Australian Taxation Office or ATO and run or managed by its trustees. SMSF can have only a maximum of four members. All of its members must be trustees (or directors, if there is a corporate trustee). The trustees or members must be responsible for all decisions made about the fund and its compliance to laws relevant to its operation. The cost of establishing the fund and annual expenses for running it can be high, which is why it is most cost-effective to have a large balance in the fund.

How does Self-Managed Super Fund work?

Self-managed super fund is a legal tax structure whose sole purpose is to give you benefits on your retirement.  SMSFs operate under similar restrictions and rules like other super funds.

There are things that you must do when running your own SMSF. These include:

  • Carrying out the role of director or trustee, and handle important legal obligations.
  • Setting and following investment strategies that are appropriate for you risk tolerance and those that will meet your retirement needs.
  • Having financial skills and experience needed to make sound investment decisions.
  • Having enough time to research investments that you want to invest in and manage the fund.
  • Budgeting of ongoing expenses like those of professional tax, accounting, audit, financial, and legal advice.
  • Keeping comprehensive SMSF records and arranging annual audits by an approved auditor.
  • Organising insurance, income protection, total or permanent disability to cover super fund members.
  • Use the money in the SMSF only for providing retirement benefits to members or trustees.
  • As a trustee, you are liable and responsible for all decisions made for the fund, even if hired professionals or other members helped you in making the decision.

How to get advice in establishing and running a Self-Managed Super Fund?

Robo-advice and SMSFs. Robo-advice is financial advice delivered by a computer instead of a human financial adviser. It is cheaper than an actual adviser. However, there are limitations to what the software can do. It is also not subject to the same quality controls and monitoring that advice from a real person is.

Ongoing SMSF advice. The need for this kind of advice depends on your needs. You can choose to have a financial adviser or broker for investment advice and an accountant for financial management of the fund. Self-managed super fund advisers should be licensed or certified to give advice. Check them on the ASIC’s register of financial advisers if they are indeed registered.

Advisers may be given authority regarding cash management accounts.

Majority of Self-Managed Super Fund use some kind of deposit account, like a cash management account, to hold surplus funds and permit active management of investments. If you are using the services of a financial adviser or even an SMSF auditor, you may have authorised them to view and/or make transactions on the account on your behalf. This is referred to as ‘third party authority’.

Different kinds of authorisation given to an adviser. The authority given to your adviser to run the self-managed super fund account can be categorised according to the extent of access you give them.

  • View access. With this access, the adviser is allowed to see transactions made on the account but cannot operate the account.
  • Access to withdraw. The adviser is allowed to make withdrawals and other transactions on the account.
  • Complete access. The adviser can do all things that you personally can also do with the account. This may include altering your contact details, as well as adding or changing authorised countersigners or terminating the account.

Risks of granting advisers third-party authority.

Allowing your adviser to run your SMSF account (adviser-operated account) places a great deal of trust in them. The risks of this permission include your money being invested in schemes or products that may not be in your best interests and the possibility that the adviser will use their access to commit fraud. Fraud can have serious consequences if it occurs.

How to limit the risks of adviser-runs accounts.

  • Understand the extent of authority you give to your advisers and the risks involved.
  • Get all account details, including authorities you have provided in writing.
  • Ask for notifications each time the adviser makes a transaction on the account.
  • Ensure that all correspondence about the account gets to you even if the adviser receives the information.
  • Check account transactions regularly and talk to your bank if something does not look right.

Things that you should ask before establishing an SMSF.

  • Have you considered other do-it-yourself or DIY super fund options?
  • Have you considered other super funds or other investment options?
  • Will the SMSF outperform your current fund?
  • Have you considered the costs of setting up and running the SMSF?
  • Will you be losing valued benefits?
  • Are you aware of our legal responsibilities and do you have enough knowledge to run the fund?
  • What happens if your relationship with the other members of the fund changes?

Possible SMSF investments.

One of the common reasons why people set up Self-Managed Super Fund is because of a broader range of investments. Through an SMSF, you can invest in shares, managed funds and property, term deposits and hold alternative assets like antiques and artwork.

Self-Managed Super Fund trustees prefer to have different assets from those of APRA-regulated super funds. They to invest more in cash, alternative assets, and property. APRA-regulated funds are better diversified.

Kingston Knight Audit are the Auditor Melbourne experts to contact when dealing with your trust account audit, SMSF Audit, financial statement audit,  and internal audit requirements. Contact us today, Kingston & Knight Audit offers a free telephone consultation to establish how we can best help you achieve the assurance and compliance you require.

Call our Melbourne team today on 03 9088 2242, or email us via

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