The Cost of Operating an SMSF
A Self Managed Super Fund (SMSF) is a retirement savings account created and managed by a small number of members – currently between 1 to 4 members. Its purpose is similar to that of a regular superannuation account however it can potentially provide cost benefits as well as flexibility with what your retirement savings are invested in, ranging from physical gold, to shares, artwork, and even business premises. This article will introduce some of the costs of having a SMSF.
The set-up and ongoing costs of a Self Managed Super Fund generally are not charged based on how much is in the fund, but rather a dollar amount for the cost of any legal advice, financial advice, SMSF administration services, and accounting work. There are normally also costs involved with investing, for example administration, management, or transaction costs when investing in shares or managed funds. Some assets require specific insurances within the fund such as property insurance, or insurance for artwork, or secure storage away from your home such as storing physical gold in a vault. There can also be other ongoing or upfront costs depending on the situation.
The average ongoing operating expenses of an SMSF in 2018 was $6,150 a year according to ATO data. These operating expenses do not include insurance and investment costs. As a result, SMSFs are normally best suited for larger balances or where there are other specific reasons for having a SMSF.
When SMSFs manage larger asset pools, the fees can be very competitive and can even be lower than the other non-SMSF options. Data from the Australian Tax Office highlights that SMSFs generally start to be cost-competitive when the balance in the fund is in excess of $500,000.
Funds with between $200,000 and $500,000 had an average expense ratio of 1.3% of assets per year, vs 0.80% p.a. for funds with total assets between $500,000 and $1,000,000. A way that SMSFs can manage a larger pool of assets is to have more members who have a reasonable balance in superannuation themselves. For example, a couple may have $500,000 each in superannuation. A Self-managed Superannuation Fund is unlikely to be cost-competitive if each of the couple were to set up their own fund, but combining the balances means the fund would manage $1,000,000. At this point, the SMSF may provide significant cost savings as well as other benefits over other Superannuation options.
The potential cost benefits need to be considered with other facets of running a SMSF to see if, overall, a SMSF is right for you. All of the Independent Financial Planners at Tupicoffs’ are licensed and qualified to provide individualised advice on this topic, as well as other related areas of your financial wellbeing.
