SMSF Setup Info

Important items to consider when setting up a SMSF
Now whilst the information on the previous page will give you an excellent grasp of the basics of what is required and the process to follow in setting up your SMSF, there are a number of other issues that you need to consider fairly carefully at the setup stage of your SMSF.

1. Choice of SMSF setup provider

The reality is that most people use the services of a SMSF establishment provider to enable them to setup their SMSF. This will take the form of either a personal accountant or financial adviser, a SMSF trust deed and setup pack supplier (who also in turn supply accountants and advisers), or a SMSF administration and setup service.

It breaks down like this:

Accountant or Financial Adviser:

Will generally provide you with a personalised service, and will supply and assist you with all the paperwork and registrations required to get established. Some of these will also be able to offer advice on strategies within the Fund. This option will generally be more expensive than the following two categories as your paying for someone else to go through the setup process with you.

SMSF Trust deed and setup pack supplier:

Will generally supply you with a trust deed (either via email softcopy or post bound hardcopy), and a setup pack, which includes all the paperwork required to establish the fund. They will generally also include a step by step guide for you to follow to complete the process, as your the one who has to get it done (instead of the accountant above). These are quite inexpensive, and can be had for as low as $100 (see our SMSF setup provider comparison list for prices and service summaries).

SMSF Admin and setup provider:

These are companies that do SMSF end of year administration, but also do SMSF setups. This is a bit of a mixed bag - some of them with assist you with the setup all the way through to completion, while others just provide you with a trust deed and a setup pack and leave you to it. The cost is generally higher than the category above, but cheaper or in line with accountants and advisers. Again, see our SMSF setup provider comparison list for prices and service summaries.


2. The trust deed

The trust deed is possibly the most important document associated with your SMSF. It acts as the governing rules of the fund, and outlines what the trustees can do over the lifecycle of the fund. The key issue here is that not all trust deeds are the same. In fact, there is quite a large variance in the marketplace in terms of the quality of trust deeds.


How do you measure quality ? Essentially, a good deed is one which is as un-restrictive as possible in regards to the superannuation laws, and the strategies you want to employ. In other words, you want a deed that will allow you to do pretty much anything that the superannuation laws will allow. Unfortunately, a lot of SMSF trust deeds do the opposite – that is, they impose a lot of restrictions. You may wonder why this is the case. There are a few reasons. Firstly, some are just “cut & paste” jobs, where the guts of the deed has been taken from an old employer super fund trust deed, with bits added to make it a SMSF deed. The old employer fund deeds were purposely restrictive for a number of reasons. The point here is that this is not what you want for a SMSF deed. Good SMSF deeds have generally been written from scratch with the flexibility of SMSFs in mind. Secondly, and most common, is that some deeds are not updated when the various superannuation laws change, which can happen most years. The reason this can be important is that you may want to participate in a particular strategy that is possible because of a law change last year, but your trust deed may not allow it.


There are a number of “signposts” in a trust deed that you can look at to get an idea of the quality of the deed, and the restrictions it may impose. These include:

- restricting members to only those people who are employees of the employer sponsor. Not good.
- restricting investments to only certain asset classes. Not good.
- restricting payout's to members only in the form of a pension. Not good if you want lump sum payout's also.


This relates back to No.1 above in terms of who you setup your SMSF through. The trust deed they use will be a key element. So ask the questions and get feedback about what trust deed they use, how often it is updated, can it handle all the latest SMSF strategies, and generally try and get a feel for what it is your getting.


3. Written investment strategy

This is a big one. The Super laws require you to formulate a written investment strategy , and the regulator (The ATO) is very strict with it. You, as trustee(s) must prepare and implement an investment strategy for the fund, which must reflect the purpose and circumstances of the fund. It should set out the investment objectives of the fund and detail the investment methods used by the trustees. All trustee investment decisions must be made in accordance with this investment strategy.

Now, most Investment strategy templates that come with establishment packages are pretty light on, to say the least. Most are one or two pages, and very generic. This can be a problem, particularly for those who are using investment strategies that are a little more involved or advanced. For this reason, The SMSF Review has developed it’s own sample template, which is very detailed, and covers a wide range of asset classes from the traditional shares, property etc, to the not so traditional such as hedge funds, derivatives, precious metals etc. This is available in the Investment Strategy template page located on the left hand side menu.


4. Pooled or separate investment strategies

When you setup your cash account for the fund, are you using a pooled investment strategy (that is, all funds are pooled together and invested for the members) or is the fund running separate, segregated member investment strategies (which entails keeping each member’s investments separate from each other) ? If your running separate member investment strategies and have each member’s funds segregated, you may want to use a separate cash or bank account for each member. This will make it a lot easier to manage, as each member’s contributions can go directly into their own cash account.


What's the difference ?
A pooled strategy is fairly common for say a husband and wife who are the only members of the Fund, and have the same investment objectives and risk tolerances. A segregated strategy is useful where you have members of the Fund who are inter-generational (say, parents and adult children) who have vastly different time horizons, different investment objectives, and different risk/ volatility tolerances. In fact, even a husband and wife of the same age with the same investment objectives can have vastly different tolerances for volatility and hence may need separate investment strategies.


5. Derivatives Risk Statement

If your SMSF is going to trade derivatives (defined in SISA as options or futures contracts) where a derivatives contract requires a margin requirement for the trade to meet the obligations of the exchange for collateral, then the fund must prepare a Derivatives Risk Statement in accordance with Regulation 13.15A of the SIS act (previously called a Risk Management Statement). This would be very difficult for the average trustee to do, and we haven’t seen any of the establishment packages actually providing this.


Therefore, to fill the gap, The SMSF Review provides a Derivatives Risk Statement sample template, and can be found at this link. Note however, that this is only a sample document template and that it is the responsibility of the trustee(s) to formulate and implement their own Derivatives Risk Statement. As it is a template only, you need to delete / add in what you require.


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