Thinking of Setting Up an SMSF? The Risks Most Australians Aren’t Told About

Introduction: Why SMSFs Are Under the Spotlight

Self-managed super funds (SMSFs) are often promoted as the ultimate way to take control of your retirement. Control over investments. Control over strategy. Control over outcomes.

In theory, that sounds appealing – especially for professionals, business owners, and investors who feel constrained by default superannuation options.

However, recent regulatory reviews and high-profile collapses have exposed a critical issue: many Australians enter SMSFs without fully understanding what they are giving up in exchange for “control.”

Regulators have found that a significant portion of SMSF advice has failed to meet legal “best interest” standards. In several cases, the advice did not merely fall short—it caused measurable financial harm.

This article provides a clear, unfiltered breakdown of the real risks of SMSFs, what protections disappear when you leave large super funds, and how SMSF decisions affect borrowing, property investment, and long-term strategy.

Table of Contents

• What an SMSF Actually Is (Beyond the Marketing)
• The Illusion of “More Control”
• The Biggest SMSF Risks Most Trustees Don’t Anticipate
• Adviser Conflicts of Interest
• Loss of Compensation and Recovery Pathways
• The Trustee Burden
• True Cost of Running an SMSF
• When an SMSF Might Still Be Appropriate
• SMSFs and Property: Where Risk Multiplies
• How Lenders Assess SMSFs
• Common Red Flags When SMSFs Are Recommended
• Key Questions Every Prospective SMSF Trustee Should Ask
• Final Perspective: Control Should Follow Capability
• How Broker360 Fits Into the Conversation

What an SMSF Actually Is (Beyond the Marketing)

An SMSF is a superannuation fund where the members are also the trustees. This means:

• You are legally responsible for compliance
• You choose investments
• You appoint accountants, auditors, and advisers
• You are accountable for mistakes—even if someone else advised you

SMSFs are regulated by the Australian Taxation Office rather than prudential regulators.

Large super funds, by contrast, are overseen by the Australian Prudential Regulation Authority, with consumer protections enforced by the Australian Securities and Investments Commission.

This distinction becomes critical when things go wrong.

The Illusion of “More Control”

“More control” is the most common justification used when SMSFs are recommended. However, control is often misunderstood.

What You Gain

• Direct investment choice
• Tailored strategies
• Asset-level decision-making

What You Lose

• Prudential oversight
• Government-backed safety nets
• Easier compensation pathways
• Built-in consumer protections

Control without protection increases responsibility and risk exposure.

The Biggest SMSF Risks Most Trustees Don’t Anticipate

Adviser Conflicts of Interest

One of the most significant risks is conflicted advice.

SMSFs generate revenue through:

• Setup fees
• Administration services
• Related-party investments

If an adviser focuses on selling the structure rather than testing suitability, that is a warning sign.

Loss of Compensation and Recovery Pathways

Members of large super funds may access recovery mechanisms when platforms fail.

SMSF trustees generally cannot.

Losses inside an SMSF are typically borne by the trustee alone.

The Trustee Burden

Trustees are responsible for:

• Compliance
• Record-keeping
• Reporting
• Audit coordination

Errors can trigger penalties, forced unwinds, or loss of concessional tax treatment.

The True Cost of Running an SMSF

Costs often include:

• Accounting
• Audit
• Administration
• Compliance advice

SMSFs are frequently more expensive than retail alternatives when all factors are considered.

When an SMSF Might Still Be Appropriate

An SMSF may be suitable when:

• Balances are high
• Trustees understand obligations
• The strategy cannot be replicated elsewhere
• Advice is independent and documented

Suitability should be proven, not assumed.

SMSFs and Property: Where Risk Multiplies

Property increases:

• Lending complexity
• Compliance scrutiny
• Structural rigidity

SMSF loans are limited and conservative by design.

How Lenders Assess SMSFs

Lenders examine:

• Trust deeds
• Investment strategy alignment
• Audit history
• Trustee conduct

Non-compliant or aggressive structures face higher rejection risk.

Common Red Flags When SMSFs Are Recommended

Be cautious when:

• Advice is rushed
• Fees are unclear
• Alternatives are not compared
• “Control” is oversold

Key Questions Every Prospective SMSF Trustee Should Ask

• Why this structure?
• What protections am I giving up?
• Who benefits financially?
• How does this affect borrowing?
• What happens if something fails?

Final Perspective: Control Should Follow Capability

SMSFs work best when capability matches responsibility.

They are tools—not shortcuts.

How We (Broker360) Fit Into the Conversation

Broker360 supports SMSF borrowers by:

• Structuring lender-friendly SMSFs
• Aligning compliance with lending requirements
• Reducing friction during approvals

If your SMSF involves property or future borrowing, structure matters before execution.

Disclaimer: Information shared is general in nature and does not constitute financial, tax, legal, or credit advice. Please seek professional advice for your specific circumstances.