Instead of passively investing in a superannuation fund, more and more Australians are choosing to opt for self-managed super funds (SMSFs) in order to take control of their retirement nest egg and cut down on fees hurting their returns. According to the ATO, there are currently estimated to be more than 562,000 SMSFs in Australia.
What is an SMSF administration company?
As opposed to going it completely on their own, Australians with SMSFs often enlist the help of SMSF administration firms who provide varying degrees of specialized SMSF services.
What does a SMSF administration company do?
SMSF administration companies can provide all the core services for SMSF trustees including:
SMSF’s need to be set up correctly so that they are eligible for tax concessions, can receive contributions and are easy to administer. It’s important to be aware of the maximum allowable number of SMSF members (four) and to ensure that the SMSF is set up and maintained for the sole purpose of providing retirement benefits to its members.
As a minimum, SMSFs need to have a Trust Deed (a legal document that covers how to establish and operate your SMSF), assets, a Trustee Declaration (A statement that you understand your duties and responsibilities) annd registration through the Australian Business Register.
An SMSF must elect to be regulated by the ATO, and must supply each fund member’s TFN. There are many compliance issue relating to the investments that the fund can hold and the contributions and payments that the fund can receive and make.
Taxation & Audit services
There are a number of annual SMSF taxation obligations including asset valuation requirements, an annual audit, and fund accounts prepared. There are strict lodgment due dates and you also need to review your investment strategy regularly.
It’s very important to remember that an SMSF must be run for the sole purpose of providing super benefits for its members when they retire. As such, anyone related to a self-managed super fund must not use its assets.
Investment services can include invest advice, transaction administration and research.
It is very difficult and time consuming to run an SMSF without at least partially outsourcing key administration tasks.
SMSF Administration Platforms
Not all SMSF administration platforms are created equal nor are all the SMSF administration firms offering identical services. While most SMSF administration companies will offer all the core services an SMSF trustee will need, the quality and breadth of the offerings can be quite different. For example, trustees who wish to buy international equities, commercial property or precious metals for their SMSFs via an administration platform may need to seek out an administrator who will cater for them. Similarly, trustees seeking SMSF administrators running platforms that have integrated accounting software packages such as Xero or have mobile apps that can be downloaded will need to be quite selective.
Different offerings will suit different SMSF trustees based on their retirement goals and service requirements.
SMSF administration firms in the crosshairs of fintech start-ups
Is there room for disruption in the SMSF administration arena? It would appear so, with the profit margins of some administration incumbents possibly under threat by cheaper automated solutions from financial technology (fintech) start-ups, in relation to investment services.
When it comes to SMSF investing in particular, some Trustees have had no problem turning to alternative investment services. Stockspot, an online investment adviser and fund manager, has seen client funds more than triple in 2015, much of which has reportedly come from SMSFs. According to Stockspot, SMSF trustees are attracted to the robo advisor for its diversity of investment choices and low management fees.
The movement to DIY SMSF accounting and taxation may be gaining traction as well with adoption of accounting package Xero. Australia also has a thriving community of financial technology start-up companies – it is certainly a space to watch.
The value of enlisting an SMSF administrator
Olivia Long, chief executive officer of the SMSF administrators Xpress Super and SuperGuardian, believes that SMSF administration firms offer a core value proposition that will not be easily eroded by automated services.
“The simple fact of the matter is that there are several reasons why administrators will continue to flourish, even as the world becomes more automated.”
“To my mind three stand out – lack of time, the value people place on advice and their genuine need for the service they get.”
“People value advice. The age-old saying ‘you don’t know what you don’t know’ applies in all industries, but especially with SMSFs.”
“Some in the industry might be surprised, but people value good old-fashioned service. Many like dealing with an SMSF specialist to leverage off their expertise to give them peace of mind about their superannuation.”
“If trustees handled their own administration, they could end up missing out on taking advantage of some of the better strategies available to SMSFs (e.g. re-contributions and withdrawal) because they are simply unaware of all their options.”