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Administration, Superannuation

SMSF study clears up cost misconceptions

SMSF cost research

The latest research into the running costs of SMSFs has cleared up the common misconception SMSFs are an expensive option compared to APRA-regulated funds, a technical expert says.

Heffron has welcomed SMSF running cost research that shows funds are far more cost-competitive than they are generally perceived to be, noting the only rising costs are those from regulators.

Heffron managing director Meg Heffron said the recent SMSF industry study from Rice Warner, commissioned by the SMSF Association and supported by SuperConcepts, had cleared up the common misconception SMSFs were always an expensive option compared to Australian Prudential Regulation Authority (APRA)-regulated funds.

“This new report proves what many of us have always known and what many others have failed to understand. SMSFs are actually cheaper than you think, but you can’t reduce their administration costs to a single universally appropriate number unless you’re happy for that number to often be wildly wrong,” Heffron said in a blog on the SMSF service provider’s website.

“It’s very disappointing that the Australian Securities and Investments Commission (ASIC) has historically misled consumers, but let’s hope this new analysis will prove useful for ASIC going forward so they can now accurately educate consumers.

“Under plenty of scenarios SMSFs of more than $500,000 were cheaper than APRA-regulated funds and they became competitive relative to APRA funds at around $200,000, but the exact comparison of operating costs depends on the choices made by trustees.

“This highlights one of the brilliant things about SMSFs – that people make choices about their superannuation and those choices can change and evolve over time.”

Highlighting the administration costs of running an SMSF, she noted the added advantage of relying on administration providers that were able to leverage benefits of scale and continue to drive down administration costs for trustees.

“Administration providers who leverage the scale of key infrastructure and investment platforms – and most of us do – are able to bring its benefits all the way to our sub-$500,000 funds. Consumers who are prepared to make choices that perfectly fit the model of a smart provider, leveraging all the help they can get from this scale within the industry itself, can receive basic SMSF administration at a fraction of the costs we saw 10 years ago,” she said.

“We now offer lower fees for funds that use specific investment platforms, that don’t have property and collectables and that adhere to requirements such as digital signing – because these days, all of those things make our own costs lower. It’s no wonder administration fees have come down. Indeed, Rice Warner commented that the only fees not reducing were the statutory ones. Perhaps ASIC and the ATO need a bit more scale.”

The study also found a significant number of SMSFs considered uncompetitive on a cost basis typically with balances below $200,000 had historically grown to exceed this efficiency threshold in a very short period of time.

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