Discrepancies with SMSF costs

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There are discrepancies within industry opinion as to the cost of running self-managed super funds – with industry bodies disagreeing with recent ASIC research.

Earlier this year, ASIC commissioned Rice Warner Actuaries to investigate how much SMSFs cost to run. Investment fees ranged from 0.35% to 1.20%, it found.

The SMSF Professionals’ Association of Australia (SPAA) said the cost findings are too high and disagreed with Rice Warner’s findings that SMSFs are cost-competitive with retail or industry funds.

“The report showed higher costs than what we understand to be prevalent in the SMSF administration market,” said SPAA CEO Andrea Slattery.
“These higher costs led to higher break-even points for SMSF balances to be cost-competitive which might be misleading to trustees. Because of this we do not think that these calculated break-even points should be used as being indicative of the costs of running an SMSF.”

Slattery suggested the most common cost would be a more useful guide.

She also said the calculated break-even points “ignore the very unique and individual nature” of SMSFs. 

“Costs often depend on the SMSF’s investments, the trustee’s level of self-administration and what type of administration platform they use.”

Costs issues can be resolved by trustees having access to advisers with better knowledge of SMSFs so they can discuss how an SMSF would fit individual circumstances, she said.

Industry Super Australia (ISA) and the Australian Institute of Superannuation Trustees (AIST) also believe the Rice Warner estimations of cost are higher than previous estimations.

They point to Australian Taxation Office data from more than 70,000 SMSFs over a three-year period as a more accurate analysis of the average costs.

In 2010, one in five SMSFs had assets of less than $100,000. The smallest funds, with assets of up to $50,000, had costs on average of over 7% p.a. Funds of between $50,000 and $100,000 had costs on average of 3.7% p.a – higher than a major not-for-profit fund with costs of less than 1% p.a.

 “Many SMSFs are established with small accounts, and their costs to earnings ratio are unacceptably high, especially when compared to industry and other not-for-profit funds,” said ISA chief economist Dr Sacha Vidler.

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