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An SMSF, or self-managed super funds, is an Australian government-approved financial vehicle that allows you to invest in superannuation. Under this investment strategy, Individual taxpayers oversee and manage it rather than employers.

The average SMSF balance is $1.1 million, and there has been a steady increase in the number of SMSF members over the past ten years.

However, SMSFs are not for everyone. There are four main reasons the average retiree should try to avoid a self-managed super fund.

1. Higher Fees

There are three main types of funds – retail, industry and corporate investments. The investment options in these funds vary. While it offers flexible financial strategies, it also has a lot of micromanaging to be dealt with.

SMSFs are self-managed, and the members are responsible for administering and managing their funds. This means paying for their financial advisers and accountants to help them manage their investments.

The average expense ratio in 2014 for a retail fund was around 1.2 per cent, while an industry fund had an average of 1.4 per cent. 

SMSFs had a fee of 1.6 per cent. Industry funds and corporate funds are more likely to have a low-cost option. This could reduce the fee you pay by up to 80 per cent.

Retail funds are also more likely to offer investment options targeted explicitly to retirees, like conservative investments and fixed interest.

2. Less Investment Choice

The Australian Government Superannuation regulates the investment options in retail and industry funds to ensure they include a diverse range of investment options.

SMSFs have fewer restrictions when it comes to their investment choices. This can lead to over-exposure to one asset class and the potential for a poor return if stocks, property or bonds drop in value.

3. Higher Risk

There is little regulation for SMSFs. This means members may not be getting the advice and support they need to make the best decisions for their future financial security.

A report from ASIC, or the Australian Securities and Investments Commission, reveals that almost 25 per cent of self-managed super funds had a poor investment strategy.

4. Issues Upon Death with SMSFs

There is no strict breakdown on how the money held in an SMSF is allocated when the fund's members die, but there are probably some issues to watch out for.

Firstly, the administration costs to the executor of the deceased member's estate. Secondly, is the government taking a substantial portion of the benefits for income tax.

While the member is alive, trustees are liable for income tax on the member's self-managed super fund income. If the member dies, the estate's executor is responsible for income tax on the member's superannuation benefits.

Suppose you leave a superannuation fund to your spouse. In that case, they are only taxed on the income if they are over 60 years old and not gainfully employed. If you leave a superannuation fund to your children or any other category of a beneficiary, then they will be taxed on the income if they are under 60 years old.


Self-managed super funds are not suitable for all members. A self-managed super fund is excellent if you know what you're getting into, but it can be a massive disadvantage if you're not prepared.

Whatever you decide, you must have a strategy in place to help you manage your super fund effectively. If you think it's time to invest in an SMSF but you need a little help, you can consider using the services of an experienced super fund manager.

Learn more about our one-of-a-kind SMSF opportunities and put your money to work for you. If you need to set up an SMSF, Wealthy You has a team of the best mortgage brokers in Sydney to assist you in establishing the best financial future. Contact us today to access a variety of mortgage choices tailored to your individual financial needs!