Self-managed superfunds (SMSFs) are popular.
Perhaps too popular with almost 600,000 SMSFs managing over $735 billion – more than 25% of Australia’s total retirement assets.
This popularity has irritated industry and retail funds with a steady stream of large member balances being transferred to SMSFs right when they were most profitable.
Members were advised and guided into SMSFs by financial advisers and accountants for the increased investment strategy control and reduced running costs.
This advice, however, is not purely altruistic as advisers and accountants increase their SMSF revenue through adviser fees and on-going accounting and compliance work. Further the adviser / accountant industry has been tainted with spruikers selling garbage investments, horrible advice and bloated fees resulting in extremely poor outcomes for consumers who fell victim to their scheme.
Regulators have reduced the attractiveness of SMSFs and the ease of accessibility via a number of means:
1. Accountants Exemption
The ATO removed the Accountants Exemption meaning that an accountant can no longer recommend the establishment of an SMSF. Financial advisers under an Australian Financial Securities License (AFSL) can recommend, and an accountant can only establish an SMSF under instruction (from adviser or client).
Therefore, members can no longer look for advice or a recommendation from their trusted accountant but need an adviser to create a full statement of advice – with fees ranging from $2,000-$10,000 depending on complexity of your financial affairs.
This measure successfully added a barrier of entry to an SMSF with members either:
- needing to be educated and resolute on their decision-making to commence an SMSF, or
- being committed to the achievement of their long-term financial future to justify the additional cost.
The Royal Commission has eliminated a lot of cowboys from the financial adviser industry where historically adviser’s self-interest was a key decider in financial product recommendation. However, there is still a bad taste in the mouth of many consumers resulting in some missing needed advice.
2. ASIC information
In October 2019, ASIC released a factsheet stating that SMSFs take 100 hours and $13,900 a year to manage. This advice leads financial advisers reluctant to recommend an SMSF, especially to those with balances under $500,000 doubling the previous ATO guidance of $250,000, as the adviser would be at an increased risk of an ASIC review.
The SMSF industry strongly hit back labelling the assumptions and the ‘click-bait’ conclusions as misleading and deceptive, stating that ASIC’s use of averages skews the results due to outliers; specifically extremely large SMSFs pushing up the cost.
With the most recent ATO data appearing to support this conclusion with the average total expenses being $14,879 whereas the median being $7,710, they further argued that the ‘running costs’ should not include borrowing & interest costs and insurance as these are specific investment decisions and not incurred by the majority of SMSFs.
Recent Cost Data
The popularity of SMSFs has grown as consistently as the debate surrounding them.
The argument about cost efficiency now has a new chapter with this recent study supporting the previously accepted wisdom that an SMSF cost competitiveness commences at $250,000. The ability to soon combine 6 members into an SMSF will only boost this advantage.
For those with higher member balance (+$500k) the SMSF decision may be as simple as cost efficiency alone. Those with smaller balances – investment choice, increased member involvement and strategy control may justify the additional cost. However, an SMSF does come with additional responsibilities and time commitments that cannot be completely outsourced and therefore may not be appropriate for some, regardless of balance.
The decision to establish an SMSF and your retirement strategy ultimately depends on your goals and your plan to achieve them. We recommend all new to SMSFs see a quality licensed financial adviser to discuss the appropriateness of an SMSF for their circumstances.
How can Walsh Accountants help you?
Our specialist SMSF Division can help you ascertain if an SMSF is right for you and advise you of the costs involved.
Should you wish to have a discussion in relation to your personal circumstances, please contact our office on 5592 3644 or firstname.lastname@example.org