An advisor’s insight into SMSF setup fees & costs

LIAM SHORTE
14 October 2021

How much super do you need for setting up a self-managed super fund (SMSF) to be worthwhile?

For many people who choose to set up an SMSF, the decision can be based more on the why, but it is also important to consider the minimum viable balance they need. For example, when setting up my personal family SMSF, our minimum balance target was $200,000. This is the amount that my wife and I believed we needed in the fund to justify the administration costs, as well as my additional time and effort managing our investments.

The personal decision to start an SMSF is often driven by a desire for more control over investment choices, or to adopt a hands-on approach to the management of retirement funds. Often, it can also be about a couple’s desire to combine funds to achieve economies of scale, or the flexibility to fund a property purchase in superannuation with or without borrowing. 

Fees for the administration and auditing of SMSFs have plummeted with the availability of data feeds from bank accounts, share trading platforms and managed funds over the last five years, however some accountants still manually input data (at a higher cost).

SMSF fees

If you want to manage all the investments yourself, here are the approximate SMSF setup and management costs to consider at the time of writing:

Once-off SMSF setup costs

  • Trust Deed: $185 to $600
  • SMSF Sole Purpose Trustee Company: $510 to $920

Annual SMSF costs

  • Online accounting admin and audit costs (basic service with little or no tax, accounting or structure advice):  $775 to $1,760
  • Complex online accounting admin and audit (complex service includes face-to-face meeting with an accountant and structure advice):  $1,650 to $7,700
  • Annual ASIC company review fee (if you have a corporate trustee): $56
  • ATO supervisory levy: $259 ($518 for new funds in 2021)
  • Add in five Share/ETF/Hybrid trades per year at an average $20 to $33 each

These fee ranges are based on my experience, as well as other sources such as the Rice Warner report discussed in more detail below. Bear in mind that the exact fees your SMSF will pay can vary depending on a number of factors, including the types of assets held in it and how much additional manual handling of data is required. 

Many of the fees paid by your SMSF are tax-deductible with the ATO. There’s generally no charge for bank accounts, term deposits or initial public offering (IPO) acquisitions, although fees may apply to these in some cases.

Is it cost-effective to set up and run an SMSF?

The cost-effectiveness of an SMSF will depend on the balance amount. In November 2020, a research report by the actuarial firm, Rice Warner and commissioned by the SMSF Association, offered some guidance about whether this form of superannuation could be cost-effective and a suitable retirement savings vehicle for people considering setting one up.

The report found that SMSFs with balances of $200,000 or more can be cost-competitive with industry and retail superannuation funds in some cases, and that SMSFs with balances of $500,000 or more (apart from those that invest directly in property) are generally the cheapest alternative as they have mostly fixed fees.

If you’re an SMSF trustee or member, it’s a good idea to regularly compare your fund’s fees and performance against a range of industry and retail funds, to help you decide whether you’ve chosen the right option for your retirement investing.

Considering if an SMSF is worthwhile for you

With an SMSF, you are looking at annual tax and audit costs of $1,450 upwards, plus investment fees. On the basis of the widely used 1% fees rule of thumb, that would mean someone with $200,000 would potentially find it achievable to run an SMSF cost-effectively.

Remember these are the base fees, and once you add the requirement for tax or financial strategy or product advice, then you must be prepared to pay more, either ongoing or as a fee for service.

It’s important to remember, too, that cost is not the only factor to consider when deciding whether to set up an SMSF. This is because managing an SMSF is not like parking your money in an APRA-regulated industry or retail fund and just checking it when the half-yearly report comes in or the news mentions a market crash. 

With an SMSF, you are taking on the responsibility of making key decisions on how your super is administered and invested. It is a lot easier to look at an APRA fund statement than to be the one who pushes the button to buy or sell an asset in volatile times. You need to have an interest in following and researching your chosen asset markets, or the scale to outsource those decisions.

Summary

Given the context of the current market costs to service your SMSF, a balance of $145,000 may be the minimum required for a viable fund, but I will stick to my recommendation of at least $200,000 with regular annual contributions, meaning that if all goes well, within five years the fund should look well above $350,000. In my view, this justifies the administration costs and some decent advice and guidance to help make the most of the system.

Cover image source: insta_photos/Shutterstock.com.

About Liam Shorte

Liam ShorteLiam Shorte is an SMSF Specialist Advisor™ and Financial Planner with Verante Financial Planning. He provides strategic advice on superannuation, retirement, estate planning, investment and tax strategies with clients and their families. Liam also writes a blog, The SMSF Coach, to help break down the strategies and industry jargon for SMSF. He is a Director on the board of the SMSF Association. You can follow Liam on LinkedIn.


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