Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 264

Some trustees should self-manage out of SMSFs

One of the great misnomers in the Australian investment scene is that self-managed super funds are actually self-managed.

The simple reality is that there is an entire advice industry built around SMSFs, be they traditional accountants, financial advisers, lawyers or one of many SMSF administration platforms.

This makes the provision of quality advice to those Australians who have an SMSF - or those considering setting one up - absolutely critical, if the more than one million SMSF trustees are to achieve the best outcome when they retire.

Concern about quality of SMSF advice

Last month, ASIC released a comprehensive report on the quality of advice and member experiences in the SMSF sector.

The 120-page report is uncomfortable reading for many in the industry because it calls out a high level of non-compliance with the best interests duty. In a review of 250 client files by an independent expert, 10% of the files risked clients being significantly worse off as a result of the advice they received to set up an SMSF.

A healthy and vibrant SMSF sector is a vital part of our compulsory superannuation system. It provides a competitive alternative to the institutional APRA funds and gives super fund members an effective choice and alternative.

ASIC says that in the right hands:

“SMSFs can be very effective retirement savings vehicles. In the wrong hands, however, SMSFs can be a high-risk option.”

ASIC’s focus was on funds set up in the past five years – so the research sample is skewed to relative newcomers to the sector - and there are some strong messages for the advice industry on where it needs to lift standards. There are also some red flags that both existing SMSF trustees and those thinking about establishing an SMSF should pay attention to.

Common problems with SMSFs and trustee expertise

ASIC found common issues centred on the disclosure of costs and risks about the set up and running of an SMSF, advisers not properly considering the client’s circumstances or existing super fund and not prioritising the needs of the client.

The ASIC report also holds up a mirror to trustees, or would-be trustees, with a challenging reality check around the personal responsibility that comes with the decision to set up an SMSF. In some of the case studies, financial literacy among trustees is clearly an issue with some trustees not aware of how their fund is performing, what it costs to operate or even if it has an investment strategy.

The bottom line is that an SMSF is not for everyone. Even someone who has good levels of financial literacy and resources may not be suited to an SMSF. ASIC cites the example of an investor with more than $2 million in super but no time or interest in running their own fund.

It raises the question of whether some base level of financial literacy needs to be demonstrated before the keys to an SMSF are handed over. The stark example in the ASIC research is that 55% of the SMSFs in the research sample had more than half their money invested in one asset type. That level of portfolio concentration risk, ASIC says, means those members may face greater risk in reaching their retirement goals.

SMSF marriage of convenience with property

Nowhere is the issue of financial literacy more pointed in the SMSF world than on the issue of borrowing to buy property. What ASIC’s online and face to face interviews showed is that for some, an SMSF has become a happy marriage of convenience between those wanting to access the residential property market and using their super savings to do it.

Now Australian investors’ love affair with property is beyond dispute. The property market has generally been kind, to the point that ASIC found that the surge in prices in recent years particularly in Sydney and Melbourne markets had “created a sense of urgency driven by a fear of missing out”. But perhaps this is a case of where love of the property market is making investors blind to risks and costs.

The fear of being locked out of the market is clearly playing into the hands of so-called ‘one-stop property shops’. ASIC’s research showed that trustees who had used a property one-stop shop had quite different experiences to those using a financial adviser or accountant. ASIC reports:

“After members had made a decision to set up an SMSF with a property one-stop shop they were introduced to related parties such as mortgage brokers, lawyers, insurance brokers, property management companies and property developers.”

What was surprising was not how the one-stop shops were operating but rather that the members seemed unconcerned about the potential conflicts of interest, and some even saw that as an advantage. Some members didn’t know if commissions or kickbacks had been paid to related parties, indeed they were vague about what the total cost of setting up the SMSF and the loan facility had been.

A Sydney case study, Luke, provided a hard-earned lesson. He set up an SMSF to buy a property in Queensland after a cold call from an adviser and a related accountant. He found costs of buying the property and running the SMSF higher than expected. He is now attempting to sell the Queensland townhouse for $22,000 less than he paid for it and his overall loss will be around $70,000. Luke admitted he should have done a lot more research, but he is not alone.

SMSF trustee responsibility

And while the financial advice industry has much to do to improve its level of professionalism, the trustees of SMSFs have to also take personal responsibility for both the decision to set up the fund, and for its investment decisions.

You certainly do not have to manage everything to do with an SMSF yourself, but if you are not prepared to spend the time understanding the costs of running an SMSF, setting an investment strategy and monitoring its performance, then you should seriously question whether an SMSF is the right retirement savings vehicle for you.


Robin Bowerman is Principal and Head of Corporate Affairs at Vanguard Australia, a sponsor of Cuffelinks. This article is in the nature of general information and does not consider the circumstances of any investor.

For more articles and papers from Vanguard Investments Australia, please click here.


July 28, 2020

Interesting, as I read this 2 years on, I wonder how these 'investors' are doing now the 10 year bull market has ended.
Investments aside, I also wonder if they can explain their responsibilities as trustees, and SMSF/ superannuation/ tax (ATO & SIS) rules and regulations beyond a few basics.

Minimal number of people with sufficient capacity, knowledge and/or time to run an SMSF. Self-confidence, particularly over-confidence with limited ability, is a significant factor in SMSF (and general investment) failure.

David Williams
July 30, 2018

It's also important to realise that cognitive decline will affect an increasing number of trustees who themselves may not be aware of this. There needs to be tests that can help trustees and their advisers to identify this issue. This is a community issue because of the tax-favoured treatment of SMSFs.

July 27, 2018

As another trustee for an independently operated SMSF (no use of financial advisers, full service brokers, lawyers or administrators) I can't help but marvel at the financial industry's ongoing attempts to try to frighten retirees into surrendering their independence to their industry. If someone has been an investor over 20 years or so, and have had a good performance, they should have no qualms about establishing and running a SMSF. I have not found the exercise onerous.

If in the furure I feel I am starting to loose interest in day to day investing, I have observed a number of LICs or specialist management funds that I would be more than happy to pass the baton to, but still retain overall control of our SMSF.

Ken S
July 26, 2018

My experience is also like Ashley's. I have been running our SMSF since 1999.
I have never used a financial advisor, and my experience with share brokers has been quite disappointing.
I am now in regular contact with a team of like-minded investors (mostly with SMSFs). We benefit from each other's knowledge and wits.
I don't think there is a better alternative. After some terrible years allowing professionals to make buy & sell decisions for me, the last couple of years are showing an average total return of 14% pa, with which I am quite happy.

July 26, 2018

Thank you for this article Robin. You make some excellent points about the realities of managing an SMSF. It is a refreshingly unemotional and unbiased account.

The recent ASIC report that you mention highlights what many of us have believed for years - that the SMSF sector is basically an accident waiting to happen. Whilst some SMSF trustees have the knowledge and wherewithal to manage their own finances and make sound investment decisions, common sense tell you this would have to be the minority. And no doubt the recent trend of SMSFs piling in to investment properties via limited recourse borrowing arrangements will have unfortunate consequences for many as the market continues to unravel.

As independent economist Saul Eslake stated earlier this year: “allowing SMSFs to borrow in order to buy residential property is on my list of the dumbest tax policy decisions of the last 20 years.”

July 26, 2018

"The stark example in the ASIC research is that 55% of the SMSFs in the research sample had more than half their money invested in one asset type. That level of portfolio concentration risk, ASIC says, means those members may face greater risk in reaching their retirement goals."

So half of all SMSFs probably had more than half of their money invested in Australian shares - that's what this is saying. Where's the problem? Every 'balanced' Industry Super Fund probably has over 80% of the money invested in one asset type - namely equities. Why isn't ASIC getting itself into a lather about that?

Yes there's the odd SMSF trustee who put $100k into the fund and perhaps foolishly bought an investment property through an LRBA, but those are minor and isolated cases.

July 26, 2018

I tend to agree with Ashley.

In our own case my wife and I do not have any engagement with investment or financial advisors, we do all our own investments, minutes, etc. however we do engage an accountancy firm for the annual returns and the audit.

We seem to be doing ok, averaging 11.68% return over 5 years and 10.15% over 10 years, which I note compares quite favourably to the ISF numbers recently quoted in the press.

July 26, 2018

Robin's argument is that SMSFs are not really self-managed at all. He says all the SMSF accountants, lawyers, administrators, platforms, etc are the ‘advisors’ advising the SMSFs. But I reckon the vast majority of SMSF owners (or at least the dominant trustee in each fund) actually do make up their own minds on investments and therefore they really are ‘self-managed’ after all. They make the decisions and then they get all the service providers to do the paperwork, lodge the tax returns, generate reports, do the minutes, etc


Leave a Comment:



Avoid these top five errors in your SMSF annual return

Every SMSF trustee should have an Enduring Power of Attorney

7 vital steps to compliance for your SMSF


Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Latest Updates


The 'Contrast Principle' used by super fund test failures

Rather than compare results against APRA's benchmark, large super funds which failed the YFYS performance test are using another measure such as a CPI+ target, with more favourable results to show their members.


RBA switched rate priority on house prices versus jobs

RBA Governor, Philip Lowe, says that surging house prices are not as important as full employment, but a previous Governor, Glenn Stevens, had other priorities, putting the "elevated level of house prices" first.

Investment strategies

Disruptive innovation and the Tesla valuation debate

Two prominent fund managers with strongly opposing views and techniques. Cathie Wood thinks Tesla is going to US$3,000, Rob Arnott says it's already a bubble at US$750. They debate valuing growth and disruption.


4 key materials for batteries and 9 companies that will benefit

Four key materials are required for battery production as we head towards 30X the number of electric cars. It opens exciting opportunities for Australian companies as the country aims to become a regional hub.


Why valuation multiples fail in an exponential world

Estimating the value of a company based on a multiple of earnings is a common investment analysis technique, but it is often useless. Multiples do a poor job of valuing the best growth businesses, like Microsoft.


Five value chains driving the ‘transition winners’

The ability to adapt to change makes a company more likely to sustain today’s profitability. There are five value chains plus a focus on cashflow and asset growth that the 'transition winners' are adopting.


Halving super drawdowns helps wealthy retirees most

At the start of COVID, the Government allowed early access to super, but in a strange twist, others were permitted to leave money in tax-advantaged super for another year. It helped the wealthy and should not be repeated.



© 2021 Morningstar, Inc. All rights reserved.

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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.