Is your SMSF working as hard as you do?

If you asked most Self-Managed Superannuation Fund (SMSF) trustees why they have an SMSF, control would be the main reason. An SMSF gives you more flexibility and decision-making than industry or retail funds. It puts you in charge of the investment strategy.

Most people understand that going in. But there’s a difference between having control and actively using it.

In my 20 years of working with SMSF trustees, I can attest to the fact that no one starts an SMSF with intentions of falling asleep at the wheel. But, as it often goes when you have plans, life gets in the way. Your priorities shift. Your day-to-day demands, be they running a business or advancing your career, kick up. And while you may not consciously choose it, the ongoing management of your SMSF slips from the radar. When that happens, the benefits of the structure can diminish. Risks increase, opportunities are missed, and the fund may no longer be working effectively towards your goals.

Some trustees assume their SMSF is being actively managed, when in reality it isn’t.

If you’re reading this and thinking to yourself, that’s all well and good—but it doesn’t apply to me, I’d encourage you to interrogate further nonetheless. It’s not uncommon for trustees to think their SMSF is being actively managed, when in reality, a very different scenario is playing out.

Making contributions doesn’t constitute active management.

Having an investment strategy documented doesn’t constitute active management.

Lodging annual returns doesn’t constitute active management.

While these activities might feel like they’re moving you forward, in practice they’re largely administrative. They say little about whether your SMSF is being actively directed, reviewed, or adjusted over time.

To assess whether your SMSF is being managed as it should be, consider whether any of the following apply:

You take a set-and-forget approach to contributions
Your investment strategy exists…but that’s about it
You haven’t planned for liquidity
No one has challenged the assumption that a SMSF is still right for you

When contributions are made every year, in the same way and at the same time, there’s a tendency to approach them as just part of routine admin.

The issue is that when you put contributions in the same basket as your other once-a-year rituals, your strategic lens stays firmly in your pocket. And that ultimately means that opportunities end up passing you by. Opportunities like making full use of contribution caps and the numerous contribution strategies available. Even the difference between making a contribution and claiming it correctly can have an impact.

So while it can feel like consistent, uniform contributions is a steady, sensible choice, in most cases, this is false pretence. The most sensible thing you can do is review your contribution strategy regularly, and adapt your approach based on what will best serve you.

Having worked on many SMSF matters over the years, I’m under no illusions that the majority of people view their investment strategy as little more than a compliance checkbox.

While having a documented SMSF investment strategy is required for compliance, approaching your strategy as a box to check and not a tool to use is a massive underutilisation. Used properly, your investment strategy should be a living document. It should be a centrepoint that you and your advisor continually return to over the course of your SMSF’s lifespan to assess and update as your broader circumstances change.

Together with your advisor, you should be using your investment strategy review to regularly work through questions like:

Has your risk appetite shifted?
What’s your plan if there’s a sudden need to sell an asset quickly?
How do your specific investments help you achieve your bigger picture objectives?
If the fund is concentrated in a single asset , what’s the rationale behind this?

Lack of active SMSF management often rears its head when clients are nearing retirement and suddenly realise that their vision for retirement cashflow doesn’t meld with the reality of their lumpy SMSF investments.

A portfolio can be high value, but if most of the value sits in one or two large, illiquid assets, accessing regular income becomes far more complex than anticipated. Without a clear, forward-looking plan for how cash will be generated year-on-year in retirement, trustees can find themselves making investment decisions in response to immediate needs rather than long-term strategy.

This becomes more important once members enter pension phase. Minimum pension drawdowns are required each year and generally increase as you age. If the fund isn’t structured to meet these payments, it can force asset sales at the wrong time.

Liquidity planning is an essential step in making sure the fund can support future cashflow needs without forcing rushed sales or reactive decisions. If that thinking hasn’t happened ahead of time, it’s usually a sign the SMSF hasn’t been actively managed at the level it requires.

An SMSF isn’t meant to exist forever by default. Just as it’s set up for a specific reason, there may come a time when that reason, or any other reason, no longer applies, and the best move you can make is to wind up your SMSF all together.

It may be that you’ve drawn down your fund to the point that the administrative costs are no longer justifiable. Or that your asset and investment types can just as easily be kept in an industry or retail super fund. In practice, we often see strategies implemented through SMSFs—particularly listed share portfolios and cash or term deposit allocations - that can be achieved within a retail or industry environment, with less administration, fewer trustee responsibilities, and often at a lower cost.

There are also practical considerations. As trustees age, the time, responsibility, and compliance burden of running an SMSF can become less appealing. In some cases, the complexity passes to a surviving spouse or family member who may not be equipped or willing to manage it.

Too often, we see SMSFs existing simply because they always have. Rather than assuming that the way it has been is the way it ought to be, it’s important to take a step back, and with your SMSF advisor, actually review whether an SMSF is still the right structure for this stage of life.

—

The SMSF structure is designed to give you a greater level of control over your super and your financial life. But the only way to reap the benefit of control is by exercising it, and in the case of SMSF, that means reviewing, adjusting, and actively steering your fund in the direction you want to go.

If you have the sense that your SMSF could be working harder for you, get in touch for a confidential conversation.

Advisory

Business Services

Forensic Accounting & Audit

Superannuation

Administration Services