Rice Warner: Cost of running SMSFs ‘declining’

Self-managed super funds with balances of $200,000 or more are cost competitive with APRA-regulated funds, according to new research from Rice Warner.

Rice Warner research shows that SMSFs are cost competitive with APRA-regulated funds at $200,000.

Self-managed super funds with balances of $200,000 or more are cost competitive with APRA-regulated funds, while at $500,000, SMSFs become the cheapest option, according to new research from Rice Warner.

In its first assessment of the competitiveness of self-directed super funds since 2013, Rice Warner also found that SMSFs with holdings of $250,000 could prove cheaper to run than industry and super funds if trustees undertake some of the administration or choose one of the cheaper admin services.

“In the seven years since the previous report, average costs of APRA regulated super funds have risen whereas SMSF costs have fallen,” Rice Warner executive director Michael Rice said.

“It is cost-effective to open and maintain an SMSF account at much lower levels than declared by the Productivity Commission and ASIC.”

Presenting the report alongside Rice Warner, the SMSF Association said the new research shed fresh light on SMSF costs and dispelled some of the myths surrounding the viability of self-directed funds with balances of less than $500,000.

“This research should finally lay to rest any arguments that SMSFs are not competitive on cost compared with the APRA-regulated superannuation sector,” SMSF Association chief executive John Maroney said.

“It is also clear that fees considerably lower than those on pricing schedules are being charged to some SMSFs, which means that they can be cost competitive even at smaller sizes.

“This is welcome news for the SMSF sector as the cost of running SMSFs, especially those funds with balances below $500,000, has been used as a key factor as to whether an SMSF is viable or not. This report should bring that false analysis to an end,” Mr Maroney said.

ASIC last year put out a fact sheet estimating that the average yearly cost of running an SMSF was $13,900 and cautioned against establishing SMSFs with less than $500,000. Its running cost estimates have been widely criticised by many in the industry who say actual SMSF costs are far lower.

Establishing an SMSF would cost between $1500 and $2500, according to Rice Warner’s latest research, while annual admin costs would sit at between $1600 and $3300. The costs of general and strategic financial and investment advice were excluded from the comparison, the company said.

There are more than 593,000 SMSFs in Australia and more than 1.1 million members. These funds account for more than $700bn, or about 25 per cent of the total $2.9 trillion in super assets.

In its research, Rice Warner found that SMSFs with less than $100,000 were not competitive when compared with industry and retail funds, while those with balances of less than $50,000 were more expensive than all other alternatives.

Arguing against any move to put in place a minimum balance requirement to establishing an SMSF even with a cost disadvantage at lower levels, Mr Maroney said many of the self-directed funds with lower balances would grow to viable levels.

“Many SMSF trustees understand they are paying higher fees initially, knowing their cost structures as a percentage of their funds’ assets will fall as they grow to a competitive size,” he said.

As well as assessing the competitiveness of administering SMSFs, the Rice Warner report also found that since 2005 returns for self-directed funds were comparable with APRA-regulated funds in both good and bad years.