iscover
iscover 
Vogiatzis said that many individuals set up SMSFs driven by the desire to choose their own investments and while SMSFs allow this level of control, similar results can often be achieved through retail superannuation products like retail wrap funds.
These funds offer flexibility in investment choices without the administrative burden of managing an SMSF, such as compliance and trustee responsibilities. Retail funds are generally more cost-effective, as they don’t require the same level of management and accounting as SMSFs.
One of the key differences between SMSFs and retail funds is the complexity and cost involved in managing them.
SMSFs demand significant time and financial investment for administrative duties like lodging tax returns and complying with the Superannuation Industry (Supervision) Act (SIS). Retail funds, by contrast, are more cost-efficient, particularly for those who prefer to avoid the intricacies of running their own fund.
Although SMSFs allow investments in illiquid assets such as direct property, unlisted shares, and options, Vogiatzis said that the costs of managing these investments – like higher interest rates on limited recourse borrowing arrangements (LRBAs) for property – can erode returns.
Unless there is substantial capital growth, SMSFs may not outperform retail funds, which tend to generate strong returns from more liquid investments like share indices.
Tax benefits of pooled retail funds
Retail funds also offer tax advantages that may not be available in SMSFs, largely due to their pooled structure.
Both SMSFs and retail funds follow the same superannuation tax rules, but retail funds can pool multiple members’ accounts, allowing for more efficient tax management.
Vogiatzis highlighted how retail funds manage franking credits – tax credits attached to dividends from shares – more effectively.
If a retail fund holds excess franking credits that individual members cannot use due to low tax liabilities, these credits can be offset across the broader fund, allowing unused credits to be refunded. In SMSFs, non-refundable unused credits are typically lost, however, at present franking credits are fully refunding.
Retail funds also offer more flexibility in handling capital losses. If one member incurs a loss, it can be offset against gains from other members’ accounts, ensuring the loss is fully utilised.
In contrast, SMSFs can only offset capital losses against gains within the same fund, limiting the effectiveness of the loss.
Additionally, retail funds can more efficiently manage fund expenses. For example, if an SMSF has both an accumulation balance and a pension-phase balance, expenses charged to the accumulation account may not yield tax benefits. Retail funds, however, can allocate fees and expenses across all members, optimising tax deductions and ensuring they are shared more evenly.
Managing contributions and withdrawals: A retail fund advantage
Another significant advantage of retail funds is their ability to manage contributions and withdrawals more efficiently, especially as individuals approach contribution caps.
Retail funds provide real-time, live balances, making it easier for members to monitor their position relative to contribution limits.
For example, if a member’s balance nears the $1.9 million cap, they can withdraw funds to bring their balance within the allowable range before making further contributions. This flexibility is harder to achieve in an SMSF, particularly if the portfolio includes unlisted or hard-to-value assets.
Retail funds also offer features like Centrelink schedules, which help members track their asset balances for pension eligibility.
SMSFs, especially those with unlisted assets, may struggle to provide the precise, up-to-date balance needed for such reporting. Retail funds, by contrast, can generate these reports easily, helping members qualify for age pension adjustments based on their asset position.
Flexibility for estate planning
Retail funds provide more options for strategic estate planning. Vogiatzis said that retail funds allow members to hold multiple accumulation accounts, offering greater flexibility in how assets are distributed among beneficiaries.
For instance, members can allocate high-taxable and low-taxable super balances to different beneficiaries depending on their tax positions, ensuring a more tax-efficient distribution, particularly for families with multiple children or beneficiaries in varying tax brackets.
In contrast, SMSFs generally don’t allow multiple accumulation-phase accounts. This makes estate planning in SMSFs more complex, as all assets are typically pooled together, making it harder to separate assets by their tax components.
Vogiatzis advised that investors carefully evaluate their financial goals and preferences before deciding between an SMSF and a retail fund. While both options offer distinct benefits, retail funds often provide a simpler, more tax-efficient solution for managing superannuation.
If you’re a broker and want to find out more about SMSF lending, click the link here.
[RELATED: Why has SMSF property investing seen a surge?]
ISCOVER 
