Skip to main content

Know the answers before establishing a SMSF

Have you ever considered establishing your own Self Managed Super Fund? With retirement planning at the forefront of everyone’s mind, this week I’ve prepared an article on the superannuation industries fastest growing sector – SMSF.

Research suggests that there are many reasons why people look to establish a SMSF. While you may think that lower fees are the main attraction, for most people, it comes down to taking control and responsibility of their own financial affairs.

In fact, it’s the combination of people wanting to take control of their own financial affairs, along with having the ability to invest in other investment products which are not largely available through traditional superannuation as the key determinants.

But before choosing to establish an SMSF, it’s important that you understand what an SMSF is and what it achieves.

An SMSF is an entity that holds and invests money in trust on behalf of its members. Being a trust, it is the responsibility of the Trustees to make sure that the rules and laws of the SMSF body are upheld.

There are two core components in every single SMSF. The investment products in which the fund chooses to invest on behalf of the Trustees and the administration of the fund.

Administration of the Fund is required annually and costs vary depending on the activity and complexity of the fund. From experience the annual charge can range from as little as $600 to costs that run into multiple $1000s. It’s important to conduct your own research and determine the most suitable service and fee structure for your fund. I have heard stories of accountants charging over $10,000 for an audit that you can obtain online for far less and for as little as $600. A word of warning, the industry has a habit of charging fees based on how much money you have under management rather than the service with which you are provided!

The main advantages of setting up an SMSF include:

  • Having personal control over your superannuation funds.
  • Having a wider scope of investment products open to SMSF investors.
  • Flexibility and choice as to what investment products and instruments the Fund invests in.
  • The ability to remove upfront and ongoing trail based fees enforced by much of the financial planning and super fund industry.
  • The ability to remove investment professionals from decision making.
  • For people who are interested in investing directly, the bulk of professional fees are removed from the equation.

One of the administration duties placed upon Trustees is that of a basic written investment plan. This must be developed, lodged with the ATO via your accountant and maintained, so in the event of an audit, the auditor can clearly establish if the investment products and instruments used in the Fund meet the investment mandate.

This is one of the reasons, amongst others, that many people seek the services that SWS provides. Our customer base is made up of an overwhelming majority of SMSF Trustees who choose to use our investment products, SPA3 and Intelledgence.

For example, as part of executing the SPA3 strategy, we take new customers through the process of establishing a written plan that outlines 5 core areas that form part of the investment mandate. These areas include:

  • The Mission Statement
  • Goals and Objectives
  • The Strategy
  • Risk and Money Management
  • Process Management

You can read how we cover each of these areas in depth, with the help of SPA3, in a previous article called “Blue print for trading success”.

Making the decision to manage your own superannuation should not be taken lightly. There are duties that come with responsibility and this does take time and effort. But the rewards are worth it, not just in monetary terms.


  • pauls says:

    Hi Im not aweare of this condition below- please can you indicate where this rule is published.
    At the moment we have lodged nothing with the ATO other than the tax return.
    getting a bit worried….

    “One of the administration duties placed upon Trustees is that of a basic written investment plan. This must be developed, lodged with the ATO via your accountant and maintained,…”

    • Gary Stone says:

      Response to Comment by ‘Pauls” and Charles:

      This is a comment that was provided ‘offline’ via email dircetly to myself. I have got permission to publish this comment and thought it best to post as is with a minor adjustment to Keith’s signature.

      Hi Gary,
      I read with interest your recent posting regarding Self Managed Superannuation Funds and the need for Trustees to have a written investment strategy. I noted your comment that there was a need to lodge the investment strategy with the ATO. This is worth exploring on two fronts. Firstly there is no atual requirement in the SIS Act for a Trustee to lodge an investment strategy with the ATO. Secondly, is it required to be put in writing?

      The reference in the Superannuation Industry (Supervision) Act 1993 to investment strategies is found in section 52 (2) f. It states –

      52 Covenants to be included in governing rules
      (2) The covenants referred to in subsection (1) are the following covenants by each trustee of the entity:
      (f) to formulate and give effect to an investment strategy that has regard to the whole of the circumstances of the entity including, but not limited to, the following:

      (i) the risk involved in making, holding and realising, and the likely return from, the entity’s investments having regard to its objectives and its expected cash flow requirements;
      (ii) the composition of the entity’s investments as a whole including the extent to which the investments are diverse or involve the entity in being exposed to risks from inadequate diversification;
      (iii) the liquidity of the entity’s investments having regard to its expected cash flow requirements;
      (iv) the ability of the entity to discharge its existing and prospective liabilities;

      Note in the opening paragraph the words – “to formulate and give effect” As you can see there is no official requirement to have a written investment strategy. However I believe it is both
      a question of degrees and “Best Practice”.

      If I have a strategy of investing in cash because of a number of reasons – market volatility, lack of understanding of various investment types or locations (e.g.overseas share markets) and
      so on, I don’t need to put that in writing. In an Audit situation I can explain that to the ATO quite simply.

      However, if I have a spread of different asset classes across say 10 -15 direct shares , some cash, some property, collectibles etc, then I believe that is a different story and I
      would suggest it would be prudent to put that in writing.

      Most SMSF Auditors will request either a written strategy or a minute confirming a previous years strategy is also adopted for the following financial year they are conducting their Audit
      on. Some don’t even ask for the strategy, they just satisfy themselves in other ways such as verbal interviews.

      On a practical level, having a written strategy will assist to keep the Trustees disciplined, focused and more involved and not just chasing the latest investment idea discovered at a
      backyard BBQ.

      Keith B. – Brisbane
      SMSF Specialist Advisor – 25 year practitioner
      Trustee of a SMSF

      Thank you Keith for adding value to this thread.


  • Daniel M says:

    In your opinion Gary,would it be of any benefit to set up a SMSF with 30k in it?

    • Gary Stone says:

      Response to Comment by Daniel:

      Yes, it would. But as with all areas of investing, the smaller the capital base the more restrictive is the method to go about it.

      You would have to use an online SMSF provider to establish the SMSF. These fees can be as low as $600. Then you would need to use a low cost ‘online’ SMSF service for annual SMSF returns and audit services. Again these can be done for as low as $600 per annum if you do your research. There are restrictions with these services in terms of which brokers you have to use to transact in the market and how your data is captured, but it can be done and large numbers of retail investors are doing it this way.

      I also urge those with small Super Fund amounts that have their Super sitting in industry Super Funds or other Managed Super Funds to have a good look at their statements and note ALL the fees that are being charged. I have seen some shockers where small balances go nowhere even in strong rising markets because of minimum fees that are charged. When you calculate the absolute fee on a small balance the percentage fee is relatively huge.

      There was a time that ‘advisors’ said that a minimum of $100K, or even $200K, was needed before one even thought about establishing an SMSF. IMHO opinion this number has come way down over the last 3 – 4 years. The $600 establishment fee and ongoing tax return and audit fee would compare favourably with the fees being deducted by managed and industry Super Funds. (Apparently there are over 50 ways that managed funds can deduct fees without having to declare how they do it and how much the fees are.)

      The benefit is that you embark on a lifelong journey of learning about investing your own money.

      For everyone that has Super investments the day eventually comes when your main ‘business’ task in life is managing your Super Fund investments and other investment capital. The sooner you start on a journey to get you ready for that day the better.

      I trust that this helps.


  • Charles Fleming says:

    Pauls can relax as there is no requirement to lodge the investment strategy with the ATO. It must be prepared and updated as required,presented to the auditor and then retained by the trustees.

    A rule of thumb often given for minimum amount to justify establishing a SMSF is $200,000 as the accounting and audit costs would almost certainly be at least $800. The government has been applying very stringent requirements on SMSF auditors which are significant contributors to the audit cost.

  • Jack Fryer says:

    Hi Gary,

    You could add that in the “Pension Phase”, (C.f. Accumulation) the tax rate is zero.

    PS: Excellent EGM this week.

Leave a Reply