SMSFs may be even more affordable than recent research into their cost-effectiveness has found, a leading SMSF service provider has said.
Administration service provider SuperConcepts said the latest SMSF industry study from Rice Warner, which found funds with balances above $200,000 were as cost-effective as public offer funds, did not include investment management charges as part of the operating costs of a fund.
As a result, actual retail and industry fund fees were likely to be even higher than indicated in the Rice Warner report, strengthening the case that SMSFs were cheaper when they had balances above $200,000, as investment management charges were hardly ever an issue for SMSFs, SuperConcepts SMSF technical and strategic solutions executive manager Philip La Greca pointed out.
“The first thing that you’ve got to remember is pretty much every Australian Prudential Regulation Authority (APRA)-regulated fund actually has a cost to just hold assets, they all have a custodian, to begin with,” La Greca said.
“Automatically just holding an asset, irrespective of buying or selling, there is an ongoing cost. That is something that most SMSFs don’t bear.
“Very few SMSFs use structured products like managed funds; we know it is only about 20 per cent of the money that is in the SMSF space is in those sort of products.”
In addition to revealing SMSFs with balances of $200,000 or above were cost-competitive with APRA-regulated funds, the study showed SMSFs with balances of $500,000 and above were generally the cheapest superannuation fund option in the market.
It 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.
Last week, Heffron managing director Meg Heffron welcomed the report’s findings, noting it had cleared up the common misconception SMSFs were always an expensive option compared to APRA-regulated funds.
