Setting up and managing an SMSF is not for the faint hearted. It takes time, money, financial and legal knowledge, and a whole lot of legwork. While the ‘self-managed’ part implies you need to do it all yourself, this isn’t necessarily true. While you could if you wanted to, if it’s all just a bit much an SMSF administrator could come in handy.
You might wonder: Why not just opt for an APRA super fund if you’re going to hire someone else to run an SMSF? Even with an SMSF administration firm at the reins, you still have a lot more choice and control with an SMSF than a retail or industry super fund.
If you want to be in the passenger seat of a car giving the driver directions, rather than one out of thousands of seats on a train in which you don’t know the stops or the end-destination, an SMSF administration firm may be the right move for you.
In this article, we’ll discuss:
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What is SMSF administration?
To give you a brief rundown on what administration tasks you would encounter looking after an SMSF yourself, let’s walk through what’s involved in setting up and the everyday operation of an SMSF.
Setting up an SMSF
Before getting to the everyday stuff, setting up an SMSF involves a whole lot of administration. Here are the general steps involved in setting up an SMSF:
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Choose your members and SMSF structure: Figure out who you want to be in your SMSF, and whether you will be going for a corporate trustee or individual trustee structure.
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Create the trust deed: This will dictate how your SMSF will run and its objectives.
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Apply for an ABN: Since you will need to be registered with the Australian Taxation Office (ATO), you need an Australian Business Number (ABN).
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Set up your SMSF savings account: This is where your member contributions will be paid into, benefits paid from, and all SMSF activity done through.
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Arrange your contribution system: Set up an electronic system that allows your trustees to pay their super into the savings account.
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Create your investment strategy: In essence, this document will set out why and how you’ve chosen to invest to meet your members' retirement goals.
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Create your exit strategy: Your exit strategy details how - for whatever reason - you will wind-down your SMSF.
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Appoint an auditor: Every year, your SMSF must be audited by an independent licenced auditor. So, find one that suits you and be ready to give them your business once a year.
Running an SMSF
Once you’ve gotten the initial legwork out of the way, there are a few things you need to do before we even get into the general operation of an SMSF. This includes rolling over your balance from your old super fund into your new SMSF and getting your employer to pay your super contributions into your new account.
Now onto the everyday stuff. Once your SMSF is up and running, you need to start accepting your members' contributions within the set contribution limits. SMSFs are bound to the same contribution caps as APRA super funds, and you must be aware of this when accepting super contributions. You need to make investment decisions for your fund - following the SMSF investment strategy - which may involve investing in shares, government bonds, commodities, exchange-traded funds (ETFs), cash, and/or even property.
As well as the everyday stuff, you also need to do the following once each year:
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Have your assets valued
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Prepare accounts and financial statements
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Regularly review your investment strategy
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Have your SMSF audited
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Lodge an annual return
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Pay any tax that’s due
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Pay the SMSF levy
You also need to keep and maintain records for up to 10 years. If you need to take out an SMSF loan to purchase any assets, there’s an administrative process for that too. Failure to comply with the strict rules and regulations of running a complaint SMSF can result in hefty fines or, in some cases, civil and criminal penalties or being prompted by the ATO to wind up your SMSF.
What is an SMSF administration firm?
Clearly there’s a lot of administrative work to be done when setting up and running an SMSF, and not doing it right can attract the unwanted attention of the ATO. So what exactly does an SMSF administration firm do to lighten the load for you?
SMSF administrators specialise in setting up and running compliant SMSFs. They also tend to offer a range of services from establishing the fund to the everyday management including accounting, tax compliance, and auditing. Essentially, an SMSF administration firm can come in handy to help you set up your SMSF correctly to ensure it’s compliant, and handle the day-to-day administration tasks of your SMSF.
Pros and cons of an SMSF administrator
You might be a little nervous about taking a wrong turn with your SMSF, and rightfully so. SMSFs come with their fair share of risk due to strict compliance laws, you need to put in your own time, use a good level of skill; they’re just generally more work than an APRA fund, especially in the set-up phase. If you’re tossing up whether or not to hand the reins to an SMSF administrator, there are pros and cons that you should weigh up.
Benefits of an SMSF administrator
With all of this in mind, it’s pretty obvious that one of the biggest pros of an SMSF administrator is the time you’ll save. Without needing to worry about all the nitty-gritty administrative duties of your SMSF, you can spend more time focusing on investing through your SMSF, looking after your own individual finances, or whatever else you like to do with your spare time.
Another key benefit of an SMSF administrator is they take out some of the risk. Since they are highly knowledgeable about how to run a compliant SMSF - because that’s their job - you probably don’t need to worry about the ATO sending you an angry letter.
Somewhat related to the time-saved benefit, having an SMSF administration firm keeps things simple. They offer auditing services and accounting services, so instead of outsourcing for all of this, you can go through one place: your SMSF administrator.
Drawbacks of an SMSF administrator
While there are benefits of appointing an SMSF administrator, there are also drawbacks that should be considered. The main drawback of an SMSF administrator is the additional cost on top of all the other regular costs of running an SMSF. Depending on the complexity of your fund and how many services you want to utilise, the cost of an administrator can vary. For this reason, it can be helpful to ring around for quotes to see what different firms have to offer.
Another perceived drawback of an SMSF administrator is you can have less control. Though the fund is still very much your own and you are still more in control than you are with an APRA super fund - where much of the time you have no idea what goes on behind the scenes or where your money is going - you aren’t really in the driver's seat anymore. If you enjoy being in complete control and that is why an SMSF is right for you, that might be a reason an SMSF administrator isn’t right for you.
When should you opt for an SMSF administrator?
At the end of the day, choosing whether to hire an SMSF administrator is completely down to you and your preferences. If you would rather free up some time and leave the administrative stuff to the professionals, hiring an SMSF administration firm might work for you. But if you would rather be in complete control, save the extra cost, and/or you don’t mind the time and work involved in running an SMSF, you could probably skip the SMSF administrator.
If you’re still not sure which way to go, you could consider speaking to an SMSF adviser. They may be able to guide you and your SMSF in the right direction.
Image by Wesley Tingey on Unsplash
