Self-Managed Superannuation Funds (SMSFs)

Over the past decade there has been an explosion in the number of Self-Managed Superannuation Funds (SMSFs) in Australia. The latest statistics released by the Australian Prudential Regulation Authority (APRA), and the Australian Taxation Office (ATO), suggest that there are close to 600,000 SMSFs in Australia that manage nearly $700 billion in assets, as at 30 June 2017. 

An SMSF is a do-it-yourself private superannuation fund with one to four members and each member must either be a trustee or a director of the corporate trustee, who will be responsible for all decisions relating to the fund, including investment decisions.

One of the primary reasons behind their popularity is the fact that members have greater control over their range of investments, the ongoing management fees and ultimately their tax liability. While establishing your own SMSF can provide significant advantages, it’s not for everyone. Before you consider the SMSF route, you need to understand your legal obligations, in relation to compliance, and the ongoing costs.

When contemplating establishing an SMSF, you need to weigh up the advantages and the added responsibilities that come with the regulations. Most importantly, you need an understanding of the costs to run an SMSF and how much money you need to invest to make it viable.

What Are The Costs?

The costs of establishing and running an SMSF can be broadly categorised into three types - establishment costs, operating costs and investment management costs.

1. Establishment Costs

If you wish to run an SMSF, you need to obtain a trust deed, appoint a trustee(s) and sign a trustee declaration. Establishment costs include fees for the preparation of documents, and registrations, as required.

2. Operating Costs

Ongoing operating costs for your SMSF include:

  • An annual ASIC filing fee for corporate trustees ($263 in 2018). A company that acts solely as a trustee of an SMSF pays a reduced fee ($53 in 2018).
  • The preparation of the annual financial statements and tax return.
  • The annual audit.
  • An actuarial certificate if the SMSF has at least one pension account and one accumulation account.
  • Fees associated with financial advice.
  • Where applicable, fees to value assets owned in the SMSF.
  • Legal fees, such as an update to the Trust Deed.
  • Assistance with fund administration.
  • Insurance for SMSF members.

These costs can vary greatly, based on the complexity of your SMSF.

3. Investment Management Costs

SMSFs often use managed funds as part of their investment strategy. As such, you may have investment management fees, which vary depending on the size of your investment. Generally, fees range from 0.5% to 2% of the funds under management. In December 2016, the ATO released a report – SMSFs: A Statistical Overview: 2014–15 – that revealed:

  • 45.7% of SMSFs have an estimated total expense ratio of 1% or less; and
  • 59.7% of SMSFs have an estimated total expense ratio of 1.5% or less.

How Much Money Do I Need To Start An SMSF?

The amount of money invested is crucial to the success of an SMSF. A number of the costs associated with running an SMSF are fixed, or not proportionate to the balance of the fund. As a guide, a balance of at least $250,000 to $300,000 is required, provided you are prepared to do some of the administration. If you opt for full-service administration, this only becomes cost-effective when you have a much larger balance.

In summary, establishing your own SMSF is a major financial decision. Therefore, the pros and cons need to be considered before going down the SMSF pathway.

If you would like to consult with us regarding the establishment of an SMSF, please contact us via email or by phone 03 5443 8888.