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Things You Need To Know About SMSFs

Things You Need To Know About SMSFs

Self-managed super funds (SMSFs) are best for people who have a lot of super and extensive knowledge of financial and legal matters. Managing them requires a lot of responsibility, significant time and effort. Understanding your legal responsibilities and investments is very important because SMSF trustees and members have the ultimate responsibility for the fund even if they seek help from SMSF professionals.

What Are SMSFs?

SMSFs are private superannuation funds managed on your own and regulated by the ATO. These funds can have up to four members where all members must be trustees or directors in case of a corporate trustee. The members are responsible for all decisions made about the fund. Trustees always need be compliant with the law to avoid breaches and penalties. Set up costs of an SMSF are high and operating expenses are also high.

How Do SMSFs work?

The sole purpose of SMSFs is to provide retirement for its members or trustees. They operate with similar rules and restrictions like other regular super funds.

Running your own SMSF requires a member or trustee to:

  • Do the role of a trustee or director including legal obligations required by law.
  • Create and carry out investment strategies appropriate for risk tolerance and those that will meet the retirement needs of the members.
  • Have financial experience and skills that will help make good investment decisions.
  • Have enough time to research on potential or possible investments and manage the fund.
  • Set budgets for ongoing expenses like professional accounting, tax, audit, financial and legal advice.
  • Keep a comprehensive record of the fund, including minutes of meetings and financial statements and arrange an annual audit by a registered and approved SMSF auditor.
  • Arrange insurance on income protection and total and permanent disability for the super fund members.
  • Use the money of the fund only to provide retirement benefits to members.

As a trustee or member of the SMSF, you are liable for all the decisions made by the fund even if you get help from professionals or even if another member made the decision.

SMSF Advisers

SMSF advisers can help members and trustees weigh the pros and cons of running an SMSF. If you are still thinking about setting up an SMSF, they can also help you decide whether it is right for you. SMSF professionals can also help in the administration of the fund and help you make wise and good investment decisions. But, if you do decide to set up an SMSF, the responsibilities of being a trustee or director is still yours, you cannot pass it on. Therefore, it is necessary that you understand whatever the advisers are doing with the fund.

SMSFs and Robo-advice

Robo-advice is financial advice from a computer software. It is cheaper but may not be subject to the same quality of advice coming from a real person. There are limitations on what the software can do.

Ongoing SMSF Advice

Ongoing advice depends on the needs of your SMSF. Your fund might need the help of a financial adviser or broker when you are looking into investment alternatives. For the financial management of the fund, an accountant is best to do the job.

To provide a type of advice, SMSF advisers must be duly licensed according to the law to give advice. To see if they are licensed, you may check their name on ASIC’s financial advisers register.

Authority of Adviser over cash management accounts

When an SMSF hires financial adviser to administer the fund, trustees, and members may have agreed to give them the authority to view, and/or make transactions on the account on their behalf. This is also known as a ‘third party authority’. Some of the type of deposit accounts that SMSFs have are usually cash management accounts to hold surplus funds and allow active management of investments.

Types of Adviser Third Party Authorities

The authority of advisers to operate a fund’s account are classified by the amount of access that is given to them.

  • View access is when the adviser can see the account transactions but are not allowed to operate the account.
  • Withdrawal access is when the adviser can make transactions, including making withdrawals on the account.
  • Complete access is when the adviser can do all the things that members and trustees can do with the account. This includes changing contact details, changing and adding authorised signatories and closing the account.

Risks Involved in Granting Advisers Third Party Authority

Giving advisers the authority to operate your account (adviser-operated account), places a lot of trust in them by the fund members. Some risks that may involve this setup include:

  • The fund’s money is invested into products or schemes that may not be in the best interests of the fund and its members
  • The possibility that the adviser will use his or her access to commit fraud. It may be a remote possibility but can have serious consequences for the fund and its members in case it occurs.

How to Limit the Risks of Adviser-operated Accounts?

To limit the risk of adviser-operated accounts, SMSF members can:

  • Understand the extent of the authority you have given the adviser and the risks involved.
  • Get all the details of the account, including any authorisation you have given in writing
  • Ask the advisers to notify you of any transactions made on the account
  • Make sure that correspondence related to any account transactions or relating to the account gets to you even if the adviser receives this information.
  • Check the transactions of the account regularly and talk to your bank if something is not right.

What should you ask before setting up an SMSF?

  • Did you consider other DIY super options? Some professionally managed super funds will let you choose specific assets like exchange-traded funds, shares and term deposits. They can give you some control of your investments without the administrative and legal responsibilities that come along with SMSFs.
  • Did you consider other super funds or investment options? Have you considered another fund or investment option first before thinking of setting up an SMSF?
  • Will the SMSF outperform you existing superfund? Do you think that the investments you choose for your SMSF will have better returns than your professionally managed super fund? Can you accurately measure the returns? Given the fact that APRA-regulated super funds have higher returns than SMSFs, would you still set up an SMSF?
  • Have you thought about the costs of running an SMSF? It is a known fact that running the fund will have high costs for investing, accounting and auditing. Are your ready for them? SMSFs were found to pay more in fees than average APRA-regulated super funds.
  • Will, you lose valued and important benefits? Superfunds regulated by APRA usually have discounted life and disability insurance. However, if you decide to set up an SMSF, the insurance should be purchased separately. Look for more insurance options before closing you current super account because age and health issues will limit your ability to buy new insurance policies and could increase premiums that you have to pay.
  • Do you have enough knowledge to run the SMSF? If you do decide to start, and SMSF, are you aware of the legal responsibilities you have as a member, trustee or director? Do you have an understanding of different investment markets? Can you create and manage a diversified investment portfolio? Do you understand the tax implications to the fund?
  • What happens when your relationship with the other fund members changes? Do you have written plans about events like ill health, death, relationship breakdown or weakening interest of a member?

SMSF members are not entitled to compensation schemes or the Superannuation Complaints Tribunal in resolving disputes if the fund loses money due to theft or fraud.

What are the possible investments that an SMSF could invest it?

SMSFs allow fund members to invest in a broad range of investments. Members can invest in shares, term deposits, property, managed funds and hold alternative assets like antiques and artwork.


As an SMSF, you have the liberty of choosing your own shares. However, if you do not have a lot of money to invest, you will not likely be diversified like a fund manager would be. Fund managers have the advantage of using pooled funds to buy a broad range of shares. Today, some APRA-regulated funds allow members to choose their own shares.


People use SMSFs to invest in properties. However, there are rules to be followed in SMSF property investments and there are costs involved in investing.


Artwork, antiques, jewellery, stamps, coins, wine, and vintage cars are some of the collectibles that SMSFs can invest in. However, strict rules apply in holding these assets.

These assets should be insured and cannot be used as present-day benefits. Artwork cannot be displayed in the home of the members or trustees and the vintage cars cannot be driven. Jewellery cannot be worn and the wine cannot be drunk.


Cryptocurrencies include Bitcoin, Ethereum, Litecoin, and Ripple. SMSFs are allowed to invest in these cryptocurrencies but as a fund trustee you should consider:

  • The nature of the cryptocurrencies. As a trustee, you should know what they are and how they work.
  • The risk involved in investing in cryptocurrencies. Look into the additional risks involved in investing in cryptocurrencies like lesser safeguards, fluctuating values over a short period of time and that they can be stolen easily.
  • Regulatory requirements that the SMSF has to adhere to when investing in them. There are regulatory requirements when SMSF invest in cryptocurrencies. Visit the ATO website for more information on these.

Investing in cryptocurrencies may put your retirement savings at risk. So seek advice from a licensed financial adviser before investing in a new type of investment.

How Do SMSF trustees invest?

Based on statistics, SMSF trustees were seen to invest more in different assets than APRA-regulated funds. SMSF invest more in cash, alternative assets, and properties while APRA-regulated funds have more diversified investments.

Dementia, Memory Loss And SMSFs

There are serious financial consequences with memory loss from an illness like dementia for an SMSF. As a trustee of an SMSF, it is necessary to plan for the possibility of impairment that will stop you from managing the fund. Make the necessary contingency plans while you are still capable than wait when your health deteriorates.

If you are not able to run the fund on your own because of ill health you could:

  • Transfer the assets of the SMSF to a managed super fund, or
  • Appoint a person you can trust to take over your responsibilities as a legal representative

Nominating another person to act as a trustee on your behalf when you are ill, requires you to give them the information needed to act the part. This information include:

  • SMSF documents which include the trust deed, tax returns, and bank account details
  • Passwords to access the SMSF accounts
  • Contact information and details of SMSF professionals that you deal with like the SMSF adviser and auditor.

Get advice from a qualified professional before making any decisions.

SMSF and Bankruptcy

According to the law, if a trustee of an SMSF becomes bankrupt, that person cannot remain a trustee, director or member of the fund. SMSFs are given a 6-month grace period to remove the bankrupt trustee and make necessary arrangements necessary for their super assets.

If you are the only member of the fund, a new director should be appointed to manage the fund while you are disqualified. If you want to find out more about bankruptcy and SMSFs seek legal advice for actions that you need to take.

Scams targeting SMSF funds

Be on the lookout for people who approach you to set up an SMSF but are aiming at withdrawing some or all the super funds to pay off their debts. These types of arrangements are illegal.

Further education on SMSF

If you have decided to set up an SMSF, we suggest you complete a free SMSF Trustee Education Program. This program will help you in understanding the role and responsibilities of a trustee. You can also check the ATO website for more information about SMSFs.

If you need more help from an approved SMSF auditor and adviser, talk to us.

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