What you may be giving up for an SMSF

There’s plenty to gain from opening a self-managed super fund (SMSF) – more control over your retirement savings, the opportunity to invest in direct property through your fund and being able to pool your super with your family members. But you may have to give up some things in return if you choose to open an SMSF instead of staying invested with a super fund.
 

What's covered in this article

• Insurance cover
• Access to investments
• Professional portfolio construction
• Investment governance and oversight
• Help and support

Insurance cover

Life insurance isn’t mandatory with an SMSF, but you do have to prove that you’ve considered the insurance needs of every member in the fund. It’s part of the compliance requirements.

Most retail and industry super funds offer members default life and total and permanent disablement (TPD) insurance, and some also offer income protection insurance. Members can then choose to keep their cover, increase it, or opt out.

The main difference between insurance in an SMSF compared to a retail or industry super fund is how the policies are set up, which affects the cost.

Super funds offer group insurance policies for their members, enabling them to negotiate competitive premium discounts with the insurer and offer members a default level of insurance coverage without the need for underwriting or lengthy waiting periods.

With an SMSF, your life insurance cover is an individual policy. You can choose your insurer and tailor the policy to your members’ needs. However, that generally comes at a higher cost and you’ll be subject to the insurer’s waiting periods and underwriting requirements.
 

Access to investments

Most retail and industry super funds are very large investors – often with global investment teams. Pooling members’ super allows them to access large scale, institutional-grade investments that are out of reach for most individual investors. This might include global private equity opportunities, unlisted property and infrastructure (including commercial properties like shopping centres and office buildings), and institutional fixed income investments.

For example, Mercer Super has 3,000 investment professionals in 42 markets seeking out opportunities in Australia and around the world, with US$692 billion in assets under management². We leverage this scale and expertise to benefit our members. 

Professional portfolio construction

Retail and industry super funds employ professional investment managers to manage their members’ retirement savings. They continuously research investment markets, monitor performance, identify available opportunities, keep the portfolio well-diversified, and make adjustments in line with the portfolio’s investment strategy.

Some super funds also offer active management in the form of a lifecycle investment option. Mercer SmartPath is managed by a global team of investment experts who automatically shift members’ asset mix as they get closer to retirement.

Doing this work yourself for your SMSF is time consuming and difficult unless you’re an investment expert. You need to regularly review the SMSF’s investment strategy to make sure it’s compliant and appropriate for every member’s retirement goals – both now and into the future. And while you can hire an investment adviser to do this for you, it’s an additional operating cost that you will need to cover.
 

Investment governance and oversight

One of the trickiest parts about managing your SMSF’s investments is making sure they comply with your fund’s trust deed and superannuation laws. For example, you need to prove that every investment in the SMSF meets the sole purpose test. In other words, each investment is made and maintained for the sole purpose of providing retirement benefits to your members, or to pay death benefits if a member dies before retirement. Breaking this rule can result in penalties and tax consequences.

These activities aren’t required when you have your super with a retail or industry super fund, because the fund is the trustee. Investment governance and oversight is their responsibility. They are heavily regulated by the Australian Prudential Regulation Authority (APRA) in terms of how they manage portfolio risk and members’ investments.
 

Help and support

In return for paying an administration fee to a retail or industry super fund, members have access to the fund’s customer service, insurance and advice teams to provide support whenever they need it. Most funds also offer digital tools, calculators and education to help members make informed decisions about their super. These services come at no extra cost to members.

With an SMSF, you will need to find and pay for this type of support yourself. If your SMSF is complex, this might mean building up a team that consists of an accountant, financial adviser, investment adviser and legal practitioner. You will also need to do a lot of your own research. The ATO website is the best source of truth for SMSF updates and education. 

Running an SMSF successfully takes considerable skills and time. Make sure you’re comfortable taking on the costs and responsibility and you understand what you may be giving up in return for managing your own super.