Get exactly what you pay for and reduce avoidable costs along the way.
Most self-managed superannuation funds (SMSFs) are administered by accountants who, in total, look after about 90 per cent of all SMSFs. A range of larger administrators look after the remaining number of funds.
How do you know if your SMSF administration is being done at a reasonable price? And how do you know what you are actually paying for?
Some SMSF costs are unavoidable but you may be able to reduce other costs by doing the work yourself. The biggest tip for finding an appropriate service provider for your fund is to understand what each charges and for what.
1. Unavoidable costs
All SMSFs must pay a supervisory levy to the Australian Taxation Office (ATO), and if the Trustee of the SMSF is a company, an annual registration fee to the Australian Securities and Investments Commission (ASIC). The supervisory levy in 2013/14 is A$321, and the ASIC fee (special purpose company) is A$44.
If you are just establishing your fund, you will need to pay a set-up fee. These can range from anywhere between A$345 to A$990, according to the ASIC/Rice Warner Costs of
Operating an SMSF report. Some providers say they don’t charge any establishment fee but that may be because they charge a monthly fee, which is designed to incorporate the setup cost.
If you want to set up your fund under a corporate trustee structure, you will have an additional ASIC fee of A$444, and a provider fee on top of that. But if you understand the base fee, you’ll know whether the provider is being excessive or not.
You also need to have your fund audited by an independent auditor. SMSF auditors now need to be registered with ASIC (check the ASIC database of qualified auditors here to make sure your auditor is on it). This auditor fee can cost betweenA$300 for a low touch fund and A$700 for a high touch one.
You also have your fund’s financial statements and tax return to file every year. If you’re financially minded and your fund isn’t too complex, you might be able to do this yourself. But if you’re not, you’ll be paying similar to what you pay your accountant for your personal affairs at the low end, and possibly (according to the Rice Warner report) more than A$1624 at the high end.
2. Add-ons and extras
You can be as hands-on or as hands off as you like with your SMSF, but just understand that the more responsibility you hand over, the more it will cost you. And at a certain point, your SMSF may not become cost efficient and you could save a lot of money by investing in an off-the-shelf industry fund.
The RiceWarner/ASIC report found that only in certain instances would a fund with a balance of A$100,000 be viable, and the most cost-effective balance for an SMSF was A$250,000, as long as the trustees undertook some of the administration.
If you don’t want to do any of the admin, then a balance of A$500,000 is needed to make the SMSF the cheapest option.
You can even hand over the investment to some administration platform, but be aware you’ll end up paying in the vicinity of A$2000 annually for this and it may not cover everything.
One large administrator charges an annual fee but business activity statements, asset purchase fees and rollover documentation are all extra.
Another administrator charges its annual fee based on the number of investments, with the costs here in excess of A$4000 for more than 40 investments. And there is yet another that bases its charges on the number of transactions – less than 100 being the cheapest, ranging up to less than 300. The cost is capped at a maximum fee of A$3300.
It’s not an add-on but how often you change your trust deed could also cost you between A$300 and A$600.
Other charges include a cost for restructuring the fund, which may include the appointment or removal of a trustee, or converting from a small APRA fund to an SMSF. Expect costs in a similar range to the above.
3. Pension phase
Most services charge differently if you are in pension phase. There will be costs for commencing the pension, separate actuarial certifications for the pension, commuting the pension and asset segregation.
According to the ASIC data, this fee could range from between A$250 to A$330 annually, plus A$180 to A$260 for the actuarial certificate.
4. The crunch
The reality is that almost every single provider has a different fee structure and costs vary widely, which makes it almost impossible to compare like for like.
Ask for a detailed description of the cost of every service you are thinking of using and compare these costs to what is offered by your existing accountant.
And don’t forget to work out whether you are better off staying with your current industry or retail fund if you are thinking of moving from one into a smaller DIY fund.