We look after a lot of SMSFs, so you might expect us to tell you everyone should have one. We won't. For a large share of Australians, an industry fund is the better choice: cheaper at their balance, less work, insurance included and protections an SMSF doesn't have. For others, an SMSF does things no public fund can, such as owning the family business's premises or keeping control of how super passes on.
This guide compares the two honestly: what's different, what it costs at different balances, the protections you give up, how Division 296 changes the picture, and a checklist for when an SMSF is the worse choice. It's general information. Setting up or winding up an SMSF is a financial product decision that a licensed financial adviser recommends. We do the accounting, tax and compliance either way.
What is the difference between an SMSF and an industry fund?
An industry fund is a large public super fund, regulated by APRA, run by a professional trustee board. You choose from the investment options it offers, it handles all administration and compliance, and it usually provides default life, total and permanent disability and income protection insurance.
An SMSF is a private trust with up to six members, regulated by the ATO. Every member must be a trustee, or a director of the company that is trustee. The trustees choose every investment, set the investment strategy, keep the records, and are personally responsible for complying with super law, with an independent audit every year.
Same tax rules, same contribution caps, same preservation rules. The difference is who's in charge and who carries the risk.
SMSF vs industry fund: side by side
| Industry fund | SMSF | |
|---|---|---|
| Who's responsible | Professional trustee, regulated by APRA | You and the other members, as trustees, regulated by the ATO |
| Investment choice | The fund's menu of options, sometimes including direct shares | Almost anything allowed by super law and your investment strategy: direct property, business premises, shares, term deposits, unlisted assets |
| Owning your business premises | No | Yes, business real property can be bought from and leased to a related party at market rates |
| Borrowing to buy property | No | Limited. New borrowing over real property is restricted to business real property from 10 August 2026 |
| Fee structure | Mostly a percentage of your balance, plus a fixed fee; some funds cap percentage fees | Mostly fixed dollar costs: accounting, audit, ATO levy, ASIC fees for a company trustee, plus investment costs |
| Cost at a $200,000 balance | Usually lower | Usually much higher as a percentage |
| Cost at a $1.5 million balance | Can be higher in dollars | Often lower as a percentage |
| Insurance | Default cover, usually without health checks | Individual policies only, may need underwriting |
| Compensation if money is lost to theft or fraud | Can apply for government financial assistance | Not available |
| External complaints | Australian Financial Complaints Authority | Not available against your own fund; only against your advisers and service providers |
| Time | Very little | Moneysmart cites more than 100 hours a year on average for trustees |
| Members | Individual accounts | Up to six, often family; assets can be pooled |
| Estate planning | Nominations follow the fund's rules; many lapse after three years unless renewed | Deed can allow non-lapsing nominations, tailored rules and reversionary pensions; surviving trustees control the fund |
| Pension payments | Account-based pensions in cash | Same, plus lump sums in assets (in specie) if the deed allows |
| Division 296 | Applies; large funds use a phased transitional method for gains | Applies; fund can elect to reset cost bases to 30 June 2026 values, and trustees control when gains are realised |
| Moving overseas | Generally no problem | Can cause the fund to lose its complying status if control moves offshore |
| Penalties for breaches | Borne by the fund's trustee | Borne by you, personally, as trustee |
Which is cheaper: an SMSF or an industry fund?
It depends on your balance, because the cost structures are different. Industry funds charge mostly a percentage. SMSFs cost mostly a fixed amount, whatever the balance. At some balance, the lines cross.
Hypothetical, for illustration only. Say an SMSF costs $5,000 a year to run (accounting, audit, ATO levy and other fixed costs, before investment costs), and an industry fund costs 0.8% a year all-in.
| Balance (combined for all members) | SMSF fixed costs | As % of balance | Industry fund at 0.8% |
|---|---|---|---|
| $200,000 | $5,000 | 2.5% | $1,600 |
| $500,000 | $5,000 | 1.0% | $4,000 |
| $1,000,000 | $5,000 | 0.5% | $8,000 |
| $2,000,000 | $5,000 | 0.25% | $16,000 |
Two caveats:
- Investment costs sit on top in both. An SMSF holding managed funds or ETFs pays their fees as well. One holding direct shares or a property may pay very little.
- Complexity adds cost. Property, borrowing, pensions, unlisted assets and more members all add work. Our page on SMSF costs breaks down what drives the bill.
The Productivity Commission's 2018 review of super found that SMSFs with balances under $500,000 returned less on average than larger funds, after costs and tax. That's an average, not a rule, but it lines up with the arithmetic above.
Do SMSFs perform better than industry funds?
Neither structure performs. Investments do. An SMSF with a well-diversified portfolio and modest costs can do as well as a good industry fund option. One concentrated in a single residential property, or holding too much cash for years, often won't. An SMSF gives you control over the result, which cuts both ways.
The honest question isn't "which returns more" but "would I, as trustee, make better decisions than the fund's investment team, after the extra cost and time?" For most people the answer is no. For some, with specific goals the public funds can't meet, the answer is yes.
Two families, two different answers
Hypothetical examples.
The Nguyens are in their late 30s, with $180,000 in super between them, two young children and a mortgage. Both rely on the default life and income protection cover in their industry fund. A seminar has suggested an SMSF to buy an apartment. For them, an SMSF would cost several times what they pay now as a percentage of their balance, they'd lose cover they may not be able to replace on the same terms, and the borrowing they were shown isn't available for a new residential purchase. Their industry fund is the better choice. Increasing contributions would do more for them than changing structure.
The Russos are in their late 50s and run an engineering business from leased premises. Their combined super is $1.6 million, both adult children work in the business, and they want to own the building rather than pay rent to a landlord. An SMSF lets the family pool balances, buy the premises as business real property and lease it to the business at market rent, with the rent going into the family's own super. Their costs are a small percentage of the balance. The trade-off is work and responsibility: a market-rent lease, valuations, an investment strategy that deals with a concentrated asset, and a succession plan. For them, an SMSF is worth a serious look with a licensed adviser.
The difference isn't wealth for its own sake. It's whether the SMSF does something specific that the public fund can't.
When is an SMSF the worse choice?
These are the situations where we usually suggest people think twice, or stay where they are.
- Smaller balances with little prospect of growing them. Fixed costs take too big a bite.
- You don't want to be involved. If you'd leave every decision to someone else, you're paying for control you won't use, and you're still legally responsible.
- You rely on default insurance. If your health means you can't get new cover, leaving an industry fund could cost you cover you can't replace.
- You're being sold an SMSF to buy a residential investment property. New SMSF borrowing over residential property isn't permitted from 10 August 2026, and a single residential property rarely meets a sound investment strategy on its own.
- You may move overseas. An SMSF must keep its central management and control in Australia.
- The members don't get on, or a relationship is shaky. Everyone's a trustee, and every decision needs agreement.
- One member is already losing capacity, with no enduring power of attorney or succession plan in place. See SMSF incapacity and succession.
- You want the safety net. If the possibility of losing money to fraud with no compensation scheme would keep you up at night, that matters.
When can an SMSF make sense?
- Your business premises. Buying the family business's property in super and leasing it back at market rent is one of the few ways super can directly support a business. See business real property.
- Family wealth across generations. Up to six members can pool balances. See our guide to the six member SMSF.
- Larger balances, where fixed costs are a small percentage.
- Estate control, where you want non-lapsing nominations, tailored deed rules and control over how and when benefits are paid.
- Engaged trustees who want direct investments and will do the work, or pay someone to.
- Large balances and Division 296, where electing the cost base reset and timing realisations can matter. See our Division 296 guide.
Can you have both an SMSF and an industry fund?
Yes, and plenty of people do. A common pattern is to keep a small industry fund account open purely to hold insurance that would be hard to replace, while the bulk of the balance sits in the SMSF. Remember that contribution caps apply across every fund you have, and your employer will need a choice-of-fund form to know where to send super guarantee.
Decision checklist: SMSF or industry fund?
Answer honestly. If fewer than half of these are true for you, an industry fund is probably the better home for your super, at least for now.
- Our combined balance is large enough that fixed costs are a small percentage of it
- We have a specific goal a public fund can't meet (business premises, family pooling, specific assets, estate control)
- We have, or will pay for, the time and skills to run the fund properly
- We've arranged insurance outside the industry fund, or will keep that account open
- All members get on and expect to for the long term
- Nobody plans to live overseas for an extended period
- Each member has an enduring power of attorney and a valid death benefit nomination
- We understand we're personally responsible for breaches, and that there's no fraud compensation
What's involved in switching, either way?
Industry fund to SMSF: set up the trust and trustee, register with the ATO, open a bank account, write an investment strategy, arrange insurance, then roll over. Our guide to setting up an SMSF walks through it, and our page on the corporate trustee vs individual trustees choice explains why most new funds use a company.
SMSF to industry fund: sell assets (most funds only accept cash), pay any final pensions and minimums, roll over, then lodge the final return and complete the final audit. Selling assets can trigger capital gains tax unless they support a retirement-phase pension. Our guide to winding up an SMSF covers the order of steps.
How BPAG helps
We prepare SMSF financial statements, member statements and annual returns, and coordinate the independent audit with an approved SMSF auditor. We don't audit funds ourselves. See our SMSF accounting and audit service.
If you're deciding between the two, we'll give you the numbers: what an SMSF would cost to run at your balance, how tax and Division 296 would play out, and what changes for estate planning. Our super and SMSF agent drafts the technical analysis; your accountant checks it against your figures and talks it through with you. Agents draft, qualified accountants review and sign off.
Whether to set up, keep or wind up an SMSF is financial product advice. A licensed financial adviser (AFSL holder) makes that recommendation, and we work alongside them. If an industry fund is the better fit, we'll tell you. Want the bigger picture first? Start with our self managed super fund guide.
Frequently asked questions
Can an SMSF invest in an industry super fund?
Not in the way people usually mean. An SMSF can't hold an interest in another super fund as an investment. It can invest in managed funds and ETFs, including products run by the same groups that manage industry funds. Members can also simply keep a separate account in an industry fund.
Do SMSFs get better returns than industry funds?
There's no general answer, because SMSF returns depend entirely on what the trustees invest in. The Productivity Commission's 2018 review found that SMSFs with balances under $500,000 returned less on average than larger funds and APRA-regulated funds, after costs and tax. Larger SMSFs varied widely.
Can I move from an SMSF back to an industry fund?
Yes. Most industry funds only accept cash, so the SMSF usually sells its assets, rolls the money over and is then wound up with a final audit and return. Selling assets can trigger capital gains tax unless they support a retirement-phase pension. Plan the timing of sales before deciding.
Is an SMSF safer from creditors than an industry fund?
No. Money in any regulated super fund, SMSF or industry, generally has the same protection from creditors in bankruptcy, subject to rules about contributions made to defeat creditors. The difference is control: in an SMSF you're the trustee, so your own mistakes are your own risk.
What happens to my insurance if I move to an SMSF?
Default cover in an industry fund usually ends when the account closes. An SMSF can hold insurance, but it has to be applied for individually, may require health checks and may cost more. Arrange replacement cover, or keep the industry fund account open, before rolling anything over.
Does Division 296 make SMSFs better or worse?
It applies to members of every fund with total balances over $3 million. SMSFs have two practical advantages: they can elect to reset asset cost bases to 30 June 2026 values, and trustees control when gains are realised. Large APRA funds use a phased transitional method instead.
Official sources
General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.