Is an SMSF right for me?

Is an SMSF right for me?

An SMSF is not the right choice for everyone.

It is important to understand your obligations as SMSF trustees and the pros and cons of setting up an SMSF.

ASIC released a list of ‘red flags’ indicators that may suggest an SMSF is not suitable for you and these issues should be carefully considered.

Red Flags

The red flags include, but are not limited to, those who:

  • Have a low superannuation balance, and would have a limited ability to make future contributions.
  • Would like a simple super solution.
  • Delegate all of the running of the SMSF to a paid advice provider.
  • Delegate all of the investment decision making to someone else.
  • Do not have a lot of time to devote to managing their financial affairs.
  • Have little experience in making investment decisions.
  • Are an undischarged bankrupt or has been convicted of an offence involving dishonesty (as such, persons are prohibited from acting as a trustee).
  • Have a low level of financial literacy.

Low Balances

In many cases, a recommendation to cost effectively set up an SMSF is with a starting balance of $200,000.

This conclusion is based on analysis of industry data and the report, “Cost of Operating SMSFs” for ASIC prepared in 2013, by actuarial consulting firm Rice Warner. This report has been an important source of information regarding SMSF costs and establishments since it was published and was the basis of ASIC guidance in 2015 that SMSFs should have a minimum balance of $200,000.

On occasion for specific circumstances, there may be cases where specialist SMSF advice may indicate that the establishment of an SMSF with a balance lower than $200,000 is appropriate. For example, if the trajectory of anticipated contributions is such that the fund will grow to this point within a short period.


The ASIC report found that 38% of respondents found running their SMSF to be more time consuming than expected.

Trustees underestimated the amount of time involved in setting up and managing an SMSF, including where tasks are outsourced to third parties. It is therefore important that trustees understand they are accountable for the decisions and actions of the fund and even outsourcing of administration activities will still require a time commitment from trustees.


An ASIC report found that 32% of respondents found the costs of setting up their SMSF was more than expected.

Ensure that you have a clear understanding of the fees they are being charged over the life of the fund and are aware of unavoidable costs including:

  • The annual SMSF supervisory levy collected by the ATO.
  • The cost of producing an annual financial statement, tax return and TBAR reporting.
  • Annual independent audit fees.
  • Costs associated to setting up the SMSF and advice, including
    • Trust deed.
    • Preparing ATO application forms.
    • Cash management application
    • Provision of binding death nomination forms.
    • Investment strategy.
    • General trust and legal advice.

Optional costs to discuss also include:

  • The costs of establishing a corporate trustee, including
    • ASIC’s fees to establish a corporate entity.
    • Annual corporate trustee fee.
    • Searches and reservation of company names.
  • Ongoing SMSF administration costs.
  • Professional investment advice fees.
  • Accounting and bookkeeping fees.
  • The cost of an actuarial certification (when required).
  • Investment management fees.
  • The cost of obtaining insurance cover; and
  • Costs relating to winding up an SMSF, including compliance costs and transactions costs related to realising assets.

The Productivity Commission Report quantified SMSF establishment costs at ranging between $916 and $2,035. Costs can be more substantial where complex legal or financial advice is required to implement bespoke strategies for the SMSF members.

A significant difference in costs of SMSF compared to an APRA-regulated fund relate to the administration fees.

SMSF members have the option to effectively manage the administration services of their SMSF such as managing compliance responsibilities, ATO correspondence and paperwork, or they can outsource these services to a professional SMSF administrator.

For example, some individuals choose to use a full or part administration service which may add $1,000 to $2,000 in fees (when compared to an APRA-regulated fund) but allows trustees to focus on other aspects of their SMSF or finances such as investment strategies and investments.

Financial literacy skills

SMSF trustees have a duty to exercise skill, care and diligence in managing an SMSF, and therefore need to possess a sufficient level of financial literacy to manage the fund and make investment decisions in line with the fund’s investment strategy. A free online course is available with the SMSF Association for trustees to build knowledge.

The views expressed in this publication are solely those of the author; they are notreflective or indicative of M3’s position and are not to be attributed to M3.They cannot be reproduced in any form without the express written consent of the author