Q: My wife and I are considering establishing our own super fund to be overseen by a licensed adviser. I asked two advisers for a quote on the set-up costs for a self-managed super fund. The first adviser charges approximately $8000; the second considerably less — about $1500. Which do you think would be the better option?
Based on the information that you have provided, an $8000 fee for advice on $600,000 in assets (assuming they all move into your super fund) works out to be 1.3% of your fund’s assets but I’m guessing that the fee quoted involves set-up costs, annual running costs and perhaps a general financial plan.
The difference in quotes is huge, but which service is the better option really depends on what you get for your money. Ask each adviser to itemise the following:
- Advice component (if any).
- Establishment costs (including trust deed).
- Running costs, such as administration, reporting (including annual audit) and lodgement.
- Any other costs that are included in the fee.
- Any other costs that may arise that are not included in the fee.
You can then compare which adviser is the most cost-effective, but cost is only one factor when selecting an adviser and/or an SMSF service. You can check out the total average cost of a SMSF later in this article, and compare your fund’s total costs to this average. The costs of set-up are not included in the annual running costs set out below.
Note: Ask the adviser to separate the costs relating to running an SMSF and other advice relating to non-super assets. Also check whether the adviser accepts commissions, and whether such
Cooper Review comments on SMSF costs
The Cooper Review (Super System Review) released a useful document in December 2009 titled ‘A statistical summary of self-managed superannuation funds’. Within that document (see pages 15 and 16), the Review panel outlines the main costs associated with a SMSF.
The average operating expense ratio (which is simply dividing the costs of running a SMSF by the value of the fund assets) has declined over time. According to the Review panel, the average operating expense ratio has declined from 0.86% for the 2006 financial year to 0.69% for the 2008 financial year.
Note that the annual cost of a SMSF is dependent on the value of the fund assets because many SMSF costs are fixed costs, such as fund audit, preparation of accounts and ATO supervisory levy. The average fund balance is reasonably high which means the fixed costs are spread over a larger value of assets (see table below). If you have a small SMSF fund balance, then you can expect to devote a higher percentage of your fund assets to annual expenses. For example, a SMSF with $50,000 or less in fund assets, has an average operating expense ratio of 5% to 6%, according to the Cooper Review document.
If you have a large SMSF fund balance, say, $2 million, then your expense ratio will be a lot lower than the average. According to the Cooper Review document, SMSFs with more than $2 million in assets had operating expense ratios of 0.47% (2006), 0.43% (2007), and 0.36% (2008).
If you have $200,000 in your SMSF, then the average expense ratio for such a SMSF is about 1.5% ($3,000), according to the Cooper Review document. Note that I’m aware of many SMSFs with roughly $200,000 of assets within the fund who manage to keep total costs to about $2,000 (or 1% of fund assets).
I also outline the costs of setting up a SMSF, and also the annual and one-off costs you can expect from operating a SMSF in my book
| SMSF: Average operating expense ratio | |||
| Financial year | Average fund balance ($) | Average operating expense ($) | Average operating expense ratio (%) |
| 2006 | $640,000 | $5,500 | 0.86% |
| 2007 | $780,000 | $6,000 | 0.77% |
| 2008 | $940,000 | $6,500 | 0.69% |
Source: Extracted from A statistical summary of self-managed superannuation funds, 10 December 2009. Super System Review. The average fund balance has been calculated by SuperGuide using the average operating expense figures and expense ratios.
Thanks for the article Trish!
Some good information and it is good that you make reference to actual real life information and examples.
Hi Trish, Just a comment on running costs for SMSFs and in particular the average fee paid for the annual compliance audit. The SuperSystemReview states the average fee to be $608 with this data being obtained from ATO SMSF tax returns. As the label for this info in the tax return is for taxable deductions, any fund which is fully in the pension phase will have $0 here as it can not claim any taxable deductions and if a fund has 50% in pension and 50% in accumulation the amount entered at the audit fee label will only be half of what is actually paid. In fact looking at table 26 in the report it is stated that data from funds that have $0 are ignored. To have $0 at this label only means that the fund has paid possibly thousands of dollars for the compulsary audit but because they are in pension phase can not claim it as a deduction.
I know from my experience as a SMSF trustee who does all the admin and preparation of the financial reports myself that it is very difficult to get an audit done for around the $600 figure.
I must commend you for a very informative site. It has helped me greatly.
Mike.
I’ve used an SMSF administrator for nearly 2 years now. The first year was free and then every year after that is a fixed cost of under $800. It’s been great so far. Running my own SMSF has already done many times better in one year than my retail fund did for me in 10 years, and it’s a great feeling being in control of your own money.
The big super funds are useless. I really don’t know what they do. Even if you put your money into a term deposit you’ll be far better off.
I just saw in the Financial Review today that non-SMSFs have made on average 3.3% p.a. for the 10 years between 2000 and 2010. The same article said inflation was 3.1% p.a. on average over that time, so the non-SMSFs have made the grand total of: 0.2% p.a.
Same article said they had lost in 4 out of the 10 years: 2002, 2003, 2008 and 2009.
What are they doing? You’re better off even if you just put your money in the bank.