Self Managed Super Funds (SMSF) allow members or trustees to have control over their retirement investments, a priority for some. But they also require financial expertise, legal knowledge and commitment, and are a target for spruikers and scammers.

The use of Self Managed Super funds is growing rapidly, increasing by 8.0% in the 2012 financial year. SMSFs now hold  $439.0 billion of the $1.40 trillion assets in super funds, accounting for 31.5% (the largest) share, larger than the amounts held in industry and retail funds. SMSF’s also have the largest average account balance of any type of super fund.

A number of commentators have raised concerns about whether SMSFs are always in consumer’s interests In a recent piece published in The Conversation, Pat McConnell, Honorary Fellow of Macquarie University Applied Finance Centre described “the huge and growing size of the Self Managed Super Funds (SMSF) sector” as a “honey pot that will prove irresistible to every financial spruiker in Australia.”

CHOICE has warned consumers to be aware of dodgy advisors who allow users early and illegal access into their SMSF. These practices not only mean that the person will no longer have any super for their retirement, they also slams them with a fee of 20%.

Consumers should be aware of the potential time, cost and the degree of knowledge involved in starting their own super fund. The Australian Taxation Office says that in order to start an SMSF, it is imperative for individuals to seek financial advice. Establishing a SMSF is a ‘major financial decision’ that requires ‘time and skill’, along with the need to adhere to administrative obligations.

There are a number of questions that consumers should ask themselves and their professional advisers before launching into such an important financial decision.

MoneySmart provides the following prompts;

Will you save or lose money?

For example, if you pay $1,000 in professional fees to administer a self-managed super fund with $10,000 in retirement savings, your expenses will be a whopping 10%. You need to be sure you have enough money to absorb the fees; otherwise your retirement savings could disappear within a few years.

Will you lose valued benefits?

Super funds usually offer life and disability insurance and a range of investment options. If you set up a self-managed super fund you will have to organise and purchase these yourself.

Will your self-managed fund outperform your current fund?

Super funds use professional managers to invest your super money. Can you do better than the professionals?

What if something goes wrong?

Sometimes things can go wrong, for example, you may lose money due to fraud.  Unlike other superannuation funds members, you will not have access to any special compensation schemes.

Do you know enough?

Do you know all your legal responsibilities? Are you on top of the investment market? Do you know the tax implications? Ultimately you will be responsible for your fund even if you have received incorrect advice from professionals.

If you’re thinking of running an SMSF, consider completing the Self Managed Superannuation Fund Trustee Education Program. It is free and designed to assist trustees in understanding their role and responsibilities.

If you’re thinking about setting up a self-managed super fund because you’re not happy with your current fund, consider changing to another fund first. See choosing a super fund.

Be wary of promoters who approach you to set up a self-managed super fund with the aim of withdrawing some or all your super to pay off debts. These arrangements are illegal. See superannuation scams.