Self-managed super funds (SMSF) is the perfect option to pursue your retirement goals. How it’s run should reflect on your current financial situation.

If you’re on solo-flight in running an SMSF, you’re one of the 23% of Australians that do this. An SMSF run by two people belongs to the majority of investors, with 70% choosing this option.

Things get more complex the more members handle the fund, which is why only a few people choose this option. Only a minor percentage of the total investing population belongs to SMSFs handled by 4 or more people.

Back then, SMSFs can be managed by up to four people only. However, new rules show that the number of people that can be included in an SMSF has been increased to 6.

Starting from 1 July 2019, SMSFs may have up to 6 members. The goal of this change is to improve flexibility, particularly for larger families with more than two children, in managing the fund.

But why would you add more members to the fund and make things more complicated?

1)      Cost

Most of the administrative costs involved in handling an SMSF are fixed. So, more people mean lower costs to be divided among members.

2)      Diversity

A larger fund allows you to invest in bigger assets without compromising diversification and drastically increasing risk.

3)      Longevity

The fund can last beyond your lifetime so long as there’s someone among the members that can manage it. This means you can pass on your investment to your children even when you’re not around anymore.

4)      Contribution cap

If the members of the SMSF include your children, you can use their contribution caps to make contributions on their behalf and save on taxes. This is a better way to increase contributions than running multiples SMSFs at the same time for each member. If you have a high net worth, this option will be very advantageous to your financial goals.

However, there are drawbacks to watch out for, especially when you have family members with you in the SMSF. Friction with members is the biggest hurdle among them.

The saying that three members are a crowd holds true in this situation. Now, if you have six members, it’s possible for things to get chaotic. Members have the right to question decisions on what to invest in and how the fund should be handled. This right seldom helps and often causes management challenges.

Final Thoughts

Managing a fund takes up a lot of time. You must set up an investment strategy and continuously research opportunities to make the venture profitable. Additionally, you must keep accounting records up to date since you must prepare for the year-end audit. There are also costs involved that you must consider in running the fund.

There are numerous advantages to adding more members to the SMSF, but make sure that the option is beneficial to the fund rather than a hurdle that keeps on bogging down proper management. Through open communication with the members, it’s possible to make the fund profitable and last for generations.