The Australian Securities and Investments Commission’s Danielle Press had conceded that consumers are “all too well aware of the potential benefits that might stem from using an SMSF, but are not equally alive to the considerable risks and responsibilities that come with the deal”. 

According to ASIC, there are six separate areas that potential investors need to consider when deciding if an SMSF is the right move. These are:

Generally, balances under $500k have lower returns after expenses and tax

This figure was cited in last week’s statement from the regulator and considered an SMSF balance of less than $500k compared with a similar balance held by industry and retail super funds.

In contrast, SMSFs with balances above $500k have returns that are competitive with industry and retail super funds after expenses and tax.

ASIC said anyone being told to enter an SMSF scenario with a balance below the threshold should ask their adviser why an SMSF would be the best option.

It takes over 100 hours a year to run an SMSF

ASIC advised that SMSF trustees spend 8.4 hours a month managing an SMSF, on average.

This equates to over 100 hours per year.

The regulator has reminded anyone thinking about utilising an SMSF that they will need to meet reporting obligations, prepare and implement an investment strategy, adapt to meet members’ changing needs, organise annual valuations of assets where required, keep up to date with changes to law, and manage the SMSF’s administration and paperwork.

The average cost of running an SMSF is $13,900 a year

An individual or couple wanting to be a smsf member will need to pay a set-up fee, an annual SMSF supervisory levy and costs for annual statements.

Tax returns, independent audits, fees for annual actuarial certificates where required, ongoing administration costs, professional investment fees and wind-up fees also need to be considered.

You could face fines or face court where assets are misused

ASIC has reminded individuals that an SMSF and its assets “must be used only to provide benefits to members for their retirement”.

Issues arise where people take money out of the SMSF before they are entitled to and spend it on items including holidays, cars or home repayments, or where they use or access any collectables that the SMSF invests in.

Property can be a risky investment

Residential properties must not be acquired through SMSFs with the intention to be lived in or rented by a member, their family or any associates.

Risks of property investments as outlined by the information sheet include high upfront costs of purchasing property, a range of ongoing management costs, potential for difficulties with selling property quickly, and the ability for property to become untenanted or damaged.

Compliance begins and ends with you

Finally, ASIC outlined that “as an SMSF trustee, you are responsible for your SMSF complying with the law, even if you pay a professional to help”.

If you do not comply, you might have to pay financial penalties, you could be disqualified from being a trustee and have to wind up your SMSF, or you could be taken to court and fined.

In addition, ASIC advised that in the event of theft or fraud, an SMSF trustee will not have access to a compensation scheme that could provide protection.