Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Register

27 November 2025

Home / Caveat Emptor

Why only four members in an SMSF?

Question from Stuart Wilson

I would like to know why SMSF's are limited to less than 5 members. My family has in excess of 4 people in it and when including siblings spouses and children, many, many more than 4.

We currently have 4 separate SMSF's which quadruples the costs and time involved in managing the funds. As a very hands on SMSF trustee, we manage all of the investments and try to complete as much of the accountancy work as we can before handing the accounts to the accountant but the costs are still 4 times what they would be if we could run a single SMSF with more members.

Many articles and companies highlight the minimum investment required in a SMSF to make it viable when considering costs, surely and increase in the number of members allowed would enable more people to benefit from establishing a SMSF.

The restriction on membership seems to be an added cost to those people wanting to establish a SMSF.

Thanks, Stuart Wilson

Reply from Ramani Venkatramani, who is an actuary and between 1996 and 2011, he was a senior executive at ISC /APRA, supervising pension funds.

SMSF's predecessor, 'the excluded fund' was regulated by Insurance and Superannuation Commission with all other complying funds, with the idea that those who wish to control their own retirement savings should be able to do so, with basic requirements being met. It was considered that in order for the control to be properly exercised, the number of members should not exceed 4, as the option of going into the bigger sectors (corporate, industry or retail) was open.

Wallis Committee in 1997 recommended its continuation with the regulation shifting to ATO and a prohibition on trustee remuneration. The limit of 4 was retained.

 

While the number 4 itself is arbitrary, the idea is to keep it small and manageable. The possibilities of lifting the number, or changing the definition (to say, all members of a family regardless of number) were suggested during the Cooper review but were not accepted.

 

As there is no limit on how many SMSFs can be set up by someone, for more than 4, two or more SMSFs can be used under the current limit.

(We have also approached ASIC for a response).

  •   3 December 2013
  • 3
  •      
  •   
3 Comments
Andrew Bloore
December 04, 2013

This has been an issue which has been discussed over and over and the answer has been the same every time, no change to the numbers. In fact the outcome of this restriction has not been a growth in the number of member it has actually seen the number of members on average decline from 15 years ago when it was approximately 2.2 member on average per fund to where it is today at 1.9. That said families need solutions. There are two different issues here, the first being the tax and structural issues of the fund and who can be a member of it (to a maximum of 4, or more technically correct, fewer than 5) and secondly how to simply manage the assets of the funds efficiently.

Having 2 funds does not necessarily mean you need to duplicate the investment process into two funds. For example you can set up a bare trust to hold all of the assets of many funds and invest them from 1 single pool to make the investment management of the assets simple. Say you have 10 members in the family, you obviously need at least 3 fund structures but you can invest via 1 holding or bare trust and simply account for the position in each tax entity in their correct proportion. This really is a simple administration function. Yes you still need 3 tax returns (one for each fund) but it dramatically reduces the administration time from an accounting point of view and simplifies the Trustees lives. Furthermore the SIS Act specifically allows the trustees to appoint an investment manager - say a patriarch, who can be responsible for managing the group assets.

Everyone seems to focus on the issue of the 4 members rather than saying well if we can only have four members how do I make my life as easy as possible within the legislation. What ends up happening is each fund ends up with different assets and one person trying to work of what goes where. There are simple solutions to all this. As always go to a superannuation professional administrator and ask how to make the fund work for you, not the other way around.

Christopher Dodson
January 11, 2017

Hi Andrew,

I am interested in your comment as I do not believe it is possible for related SMSF's to invest in a bare trust or unit trust which holds anything other than property and cash.

Are you able to provide references on how this can be completed?

Philip La Greca
December 19, 2013

The other rationale for the limit relates to how the decision-making process works in the multi-member funds and the number of members that could be overridden.

The SIS law does not specify so the general principle is a majority of trustees/directors rules. Thus with a two member fund both must agree, for a three member fund then two out of three and for a four member fund three out of four. In these cases then only ever one person's wishes are not met. If we take this to five members however then we end up with three out of five so more members are not satisfied with the outcome.

This would require a statutory basis for decision-making and anything else than a unanimous decision would always result in some low cap of member numbers. Even 75% for a 10-member fund would mean two outvoted members.

If you consider how difficult it is to get 5 people to agree on how to split a lunch bill consider the outcomes when you are talking about peoples retirement savings.

 

Leave a Comment:

RELATED ARTICLES

Lending policies can spoil good SMSF strategies

Meg on SMSFs: Winding up market linked pensions with care

Does a declaration of trust satisfy SMSF separation of asset regulations?

Firstlinks is sponsored by:
banner

Most viewed in recent weeks

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

LICs vs ETFs – which perform best?

With investor sentiment shifting and ETFs surging ahead, we pit Australia’s biggest LICs against their ETF rivals to see which delivers better returns over the short and long term. The results are revealing.

Warren Buffett's final lesson

I’ve long seen Buffett as a flawed genius: a great investor though a man with shortcomings. With his final letter to Berkshire shareholders, I reflect on how my views of Buffett have changed and the legacy he leaves.

Family trusts: Are they still worth it?

Family trusts remain a core structure for wealth management, but rising ATO scrutiny and complex compliance raise questions about their ongoing value. Are the benefits still worth the administrative burden?

13 ways to save money on your tax - legally

Thoughtful tax planning is a cornerstone of successful investing. This highlights 13 legal ways that you can reduce tax, preserve capital, and enhance long-term wealth across super, property, and shares.

Why it’s time to ditch the retirement journey

Retirement isn’t a clean financial arc. Income shocks, health costs and family pressures hit at random, exposing the limits of age-based planning and the myth of a predictable “retirement journey".

Latest Updates

Investment strategies

Where to hide in the ‘everything bubble’

It might not be quite an ‘everything bubble’ but there’s froth in many assets, not just US stocks, right now. It might be time to stress test your portfolio and consider assets that could offer you shelter if trouble is coming.

Investment strategies

The ultimate investing hack: dividend growth stocks

Investors often fall prey to ‘amygdala hijacks,’ letting emotion trump reason. By focusing on dividend-growth with stocks instead of volatile prices, you can steady your mindset and let compounding do the work. 

Investment strategies

CBA or global banks?

CBA’s recent pullback highlights single-stock risk. Global banks trade at lower P/Es with rising earnings and dividends, offering investors both income potential and long-term value beyond the local market.

Investment strategies

Global dividends rising, but Australia lags

Global dividend growth surged in the third quarter, with median growth of almost 6%. Australia was a notable exception as dividends fell, thanks to flagging mining company payouts.

Economy

I called inflation's rise and fall and here's what's next

In 2020, I warned that surging US money supply growth would spark inflation. By early 2023, I said US money supply was dropping dramatically and that meant inflation would decline. Here's what happens next.

Superannuation

Are excessive super funds giving Australia “Dutch Disease”?

The irony is profound: a system designed to secure Australians’ futures may be systematically dismantling the economic diversity necessary for long-term prosperity.

Investment strategies

Could your children pass the inheritance ‘stress test’?

You devote years of your life working, saving and investing, striving to build a legacy that will outlive you. Before any wealth moves to the next generation, here are six questions every parent should ask themselves.

Economy

Energy policy must prioritise the economy

The Liberal Party has released an energy policy that favours the economy over emissions reduction targets and while it's a good start, more can more done to get the right balance to ensure our continued prosperity.

Sponsors

Alliances

Site Map

About Firstlinks

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.