How to do a health check for your SMSF

If you have a Self-Managed Super Fund (SMSF), chances are you're doing your best to ensure your fund is compliant with the considerable legal obligations of SMSF directors and trustees in Australia.

SMSFs require time be dedicated to accounting, record keeping, and annual auditing with an accredited SMSF auditor.

Then there’s researching investment strategies and keeping up to date with changes in superannuation and tax laws.

Sometimes meeting the many requirements of maintaining an SMSF can keep you from seeing the wood for the trees. That’s where a dedicated superannuation health check can help to get your SMSF on track and moving towards optimum performance.

Where to start

The Australian Taxation Office (ATO) provides comprehensive super health check advice to all Australians, though the vast majority keep their superannuation in industry funds.

However, the number of SMSFs held by Aussies is growing. As at March 2024, there were 616,400 SMSFs in Australia with a combined total of 1.15 million members.

Despite that figure representing less than 5% of Australia’s population, SMSFs held around 24% of the $3.9 trillion invested in superannuation nationally.

With such as substantial pool of assets, health checking your SMSF is vital. Let’s start at the beginning.

1. Check your SMSF’s admin details

As with all superannuation health checks, it’s wise to start with the basic but all-important administrative details.

Ensure names, addresses, contact details, and financial institution details are up to date and easily accessible.

Also make sure any entity names are properly registered and up to date.

2. Consider your SMSF’s balances, contributions, and financial statements

If you haven’t checked the accounts of your SMSF lately, it’s wise to do so.

While an SMSF must be audited annually, it can be too easy to sign the documents at audit time and feel relieved that the task is done for another year without analysing any numbers.

Firstly, ensure that regular contributions or investment earnings are coming into the account/s you’ve set up for your SMSF.

Next, check the fees charged by the institution/s you’ve chosen to hold your cash, returns, or other investments are appropriate and competitive. You may be able to find better deals on the market.

Relatively small changes such as these could feasibly save you tens of thousands of dollars by the time you’re ready to retire.

While you’re at it, make sure the assets of your SMSF are being held separately to your, or another trustee’s, personal assets. This is one of the biggest mistakes SMSF operators routinely make.

Be on the lookout and take steps to avoid any crossovers that may trip you up.

3. Look over your SMSF trust deed

The trust deed is the foundation to any SMSF. It contains the all-important list of rules spelling out what you can and can’t do with your particular SMSF.

If your fund's been established for some time, you’ll need to ensure your original deed still complies with current laws. Legislation covering SMSFs has gone through considerable change over the past 15 years, after all. Ideally, up-to-date deeds should have clauses that refer to current legislation.

It could also be that your original trust deed may be prohibiting things that are now allowed. This could include processes for removing members, splitting SMSF balances, or conflict resolution.

Your original deed may also mention people or entities that no longer exist or are no longer relevant. They should be removed to help your fund run more smoothly, particularly if anything should happen in the future that needs to be dealt with quickly.

An SMSF’s trust deed can typically be updated or amended by the trustee(s) of the SMSF, provided the trust deed allows for that to happen to begin with.

Of course, amendments must be in accordance with the law and also the fund’s governing rules.

You can change the trust deed yourself using a Deed of Variation or seek professional advice to help you do so.

If you make certain changes to your SMSF set up, you’ll also have to notify the ATO.

4. Check your constitution

The trust deed is not the only document that may need a spring clean. The company constitution for an SMSF trustee can be just as important.

While SMSF members must comply with SMSF laws, the directors of a trustee company are also bound by corporations law. Sometimes the two may not exactly line up.

Such variances can sometimes pop up in matters covering conflict resolution and other decision making. Seeking professional advice is likely your best bet to ensure the SMSF is compliant.

5. Review your SMSF’s investment strategy

Every SMSF needs to have a complying and detailed investment strategy.

According to the ATO, this document needs to outline your plan for making, holding, and realising assets consistent with your stated strategy and retirement goals.

The document also needs to set out why you’ve chosen to invest the way you have and explain how the fund’s investments meet each member’s retirement objectives, address risk, achieve diversification, allow for liquidity, and are insured.

It’s also a legal requirement for the strategy to be reviewed regularly. Ideally, this part of your super health check should occur at least once per year.

Importantly, your strategy needs to be updated if you want to invest outside of your current strategy, such as if an unexpected opportunity in a different asset class presents itself.

Changing your investment strategy to reflect the opportunity is a much better option than going ahead with an investment and trying to work around it later. Such a move could expose trustees to audit beaches and potential penalties.

You also need to be aware of what your SMSF can’t invest in. Some of these may be specified by your fund’s trust deed; others will be restricted by law.

6. Look at other superannuation funds' returns

As part of any superannuation health check, it’s a good idea to have a look at how other super funds are performing, including industry superannuation funds.

Managing an SMSF can be considerable work and to do it properly could, in some cases, be considered a full-time job. This can be very difficult to balance if you’re already working full-time to generate income.

It can also cost a considerable sum to meet the legal and tax requirements imposed on SMSFs.

Your SMSF health check can reveal if you need to dedicate more time to your investments, seek some new ideas or professional advice, or even wind up your fund and transfer the assets to an industry based super fund.

According to the latest official statistics, almost 11,000 SMSFs were wound up in year ended June 2023, although the annual number has been consistently falling for several years.

There're many avenues to seek support and advice on managing your SMSF and making sound investment decisions, including specialist financial advisors, accountants, and lawyers.

Some of these professionals may be limited in the kind of advice they can give you, but most can certainly outline your options.

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