What is an SMSF?
SMSF stands for Self-Managed Superannuation Fund and is a structure unique to Australia that provides a do-it-yourself superannuation option. Unlike a standard industry or retail superannuation fund, an SMSF is managed directly by its members, who have a significant degree of control over investment and administrative decisions.
An SMSF may have up to six members, with the most common structure being a two-member fund where spouses choose to invest together. Many members choose to establish an SMSF because it allows them to directly select and manage their own investments, often with fewer restrictions on investment type, platform or asset selection. Self-Managed Super Funds are regulated by the ATO that is charged with ensuring funds remain compliant with the SIS Act and associated regulations.
Establishing an SMSF to invest with FIIG
FIIG has partnered with SMSF Australia to assist investors looking to utilise their superannuation to invest in bonds as part of a diversified investment portfolio through an SMSF.
SMSF Australia is an SMSF-focused accounting provider offering full-service assistance to clients directly, as well as supporting smaller accounting firms through its white-label service. Its Australian-based Directors are all SMSF Specialist Advisors and oversee the administration and accounting of more than 1,800 SMSFs each year.
SMSF Australia has an online application process designed to be as simple and straightforward as possible. To get started, you will generally need the following:
- Tax File Numbers (TFNs) for each person who will be a member of the SMSF
- A scanned or photographed copy of each member’s driver's licence, passport or similar photo identification
- The name you would like to use for the SMSF. This can be something as simple as "The Smiths Super Fund" through to something more creative such as "This Charming Man Super Fund"
- Director Identification Numbers (DINs) for each member
Director Identification Numbers are relatively recent but are now required for all company directors and can be obtained via the Australian Business Registry Services website. As your SMSF will be established using a corporate trustee (a Pty Ltd company), each member will generally need to hold a DIN.
While this does add an extra step during the setup process, corporate trustees for SMSFs generally offer greater flexibility, privacy and administrative benefits than an individual trustee structure.
The cost to establish your SMSF online with SMSF Australia is $2,000 + GST and includes all legal documentation, accounting assistance and ASIC registration costs, together with one-on-one support throughout the setup process.
Once you decide to proceed, it will generally take only a few business days from completing the application form to receiving the documentation required to open the fund's bank account.
Important Information before setting up an SMSF
It is important to remember that all SMSFs are regulated by the ATO and have ongoing compliance obligations to ensure they continue to operate in accordance with superannuation law. To satisfy these requirements, an SMSF must prepare annual financial statements and lodge an SMSF Annual Return, with the fund also being subject to an independent audit each financial year.
By working together, FIIG and SMSF Australia can assist with much of this administrative burden. FIIG provides the investment reporting required for your bond holdings, while SMSF Australia manages the accounting, taxation and compliance requirements of the fund.
The annual cost for this service with SMSF Australia is $1,300 + GST and includes technical and administrative assistance from its experienced team. This fee also includes the cost of the independent audit. It is important to note that other investments outside of fixed income, listed equities (domestic or international) and other data fed choices may lead to higher costs. Checkout the SMSF Pricing table on the SMSF Australia website to learn more about the pricing you should expect based on your investment plans.
What happens after I establish my SMSF?
Once SMSF Australia has completed the establishment of your SMSF, you will be able to open the fund's bank account and trading account.
While there is generally no requirement for an SMSF to use a particular bank or account type, larger established banks tend to be easier dealing with complex structures like self-managed super funds. Anecdotally, Macquarie is a favourite with many clients along with ANZ who have a product known as ANZ V2 Plus which has the benefit that accountants are able to assist in opening on behalf of clients. SMSF Australia can assist eligible clients with establishing these ANZ accounts without any additional charge as part of its SMSF setup service. Alternatively, clients may choose to open an account directly with the financial institution of their choice.
Once the bank account has been established, your existing superannuation benefits can be rolled over into the SMSF, which is again something SMSF Australia will assist with as part of the setup process without additional charge.
How do bonds fit into an SMSF portfolio?
There are numerous types of bonds issued by Governments or larger companies which are generally investment grade bonds. These bonds can either be bought from the issuer or purchased on the secondary market. Broadly speaking, bonds are merely a type of loan made by investors to a government or institution in exchange for regular interest payments (the coupon rate) along with the return of capital at maturity. Depending on a trustee’s objectives an SMSF may utilise a portion of their fund for purchasing bonds for reasons of diversification, capital preservation or income returns in order to meet pension and other payments.
The bond market includes a wide range of investment opportunities, from highly secure government bonds through investment grade corporate bonds issued by some of Australia's largest companies such as the big four banks and even more higher yielding sub-investment grade options (though these do come with slightly higher risk). Investors may also consider specialised bond categories such as Floating Rate Notes (FRNs), which provide interest payments that move with market interest rates, or Inflation Linked Bonds, which are designed to help protect purchasing power over time which are especially useful in high inflation environments.
FIIG clients have a specialised Relationship Manager who will be able to work with clients looking to build and manage an income producing portfolio. Their Fixed Income Experts will guide SMSF trustees through all these different bond options. In addition to providing access to a broad range of government and corporate bonds, FIIG also offers investment research, market commentary and portfolio insights to help investors make informed decisions as part of their long-term retirement strategy.
Frequently Asked Questions
What is an SMSF Investment Strategy?
All Self-Managed Super Funds are required to have a compliant investment strategy. As part of the annual audit process, the SMSF auditor will review the investment strategy to ensure it satisfies the relevant legislative requirements. However, the auditor does not assess whether the strategy is a good or bad investment decision, only whether it is compliant.
We have worked with our audit partners to develop an investment strategy template that clients can adapt and use. The template allows for cryptocurrency investments, along with a broad range of other asset classes, and is provided free of charge to clients as part of the SMSF establishment process. For more information about SMSF investment strategies, please see the article below:
https://smsfaustralia.com.au/smsf-investment-strategy/
Does my SMSF pay for an Electronic Service Address for the Fund?
All SMSFs are required to have an Electronic Service Address (ESA), which allows the fund to receive SuperStream messages and facilitates activities such as rollovers from existing superannuation funds and the receipt of employer contributions.
An ESA is essentially a secure electronic messaging address used within the superannuation system. As part of our service, we provide clients with access to an ESA, "smsfdataflow", which integrates with the Class Super software platform and helps ensure the fund can receive SuperStream messages from day one.
Through the Government's SuperStream framework, the ESA enables the electronic exchange of information between superannuation funds, employers and other participants within the superannuation system. For more information about how the mandatory ESA system works, check out our detailed article below:
https://smsfaustralia.com.au/what-is-the-electronic-service-address-esa-for-my-smsf/
Is an SMSF required to diversify its investments?
Although it is usually advisable to consider diversification as part of an investment plan, there is no legal requirement for an SMSF to hold a particular number of asset classes or maintain a minimum level of diversification.
It is generally permissible for an SMSF to have anywhere from 0% through to 100% of its assets invested in a particular asset class, whether that be bonds, equities, direct property, bullion or other investments. The key requirement is that the investment approach is consistent with the fund's investment strategy and permitted under the SMSF Trust Deed.
As part of the SMSF Australia establishment process, both the Trust Deed and investment strategy template are designed to provide trustees with a broad degree of investment flexibility.
Does an SMSF have to buy insurance for its members?
Insurance is not a requirement for an SMSF, although it is often an important consideration and something many members value having within their superannuation arrangements.
Generally, there are two common approaches for clients choosing to move to an SMSF structure. The first is to leave a balance in their existing industry or retail superannuation fund to retain their current insurance cover. These policies are often provided through group or pooled insurance arrangements, which can be difficult or expensive to replicate within an SMSF environment.
The second option is to engage a financial adviser to arrange a personal insurance policy to be held through the SMSF. The availability, cost and complexity of this option will depend on a range of factors, including the member's age, occupation and any pre-existing health conditions.
In practice, many SMSF trustees initially choose the first option, leaving a balance in their existing fund while they investigate the costs and suitability of alternative insurance arrangements. For more detailed information, please see the article by SMSF Australia below:
https://smsfaustralia.com.au/smsf-insurance-explained/