Administration, Auditing, Investments, SMSF

SMSFs remain cost-effective

Class report SMSF costs

The cost-effectiveness of SMSFs has continued to be drawn out, with new research showing fund expenses total less than 1 per cent of assets despite increases in underlying investment fees.

SMSFs have continued to be cost-effective to maintain with expenses totalling less than 1 per cent of fund assets despite increases in some underlying fees, according to research carried out by administrator and technology provider Class.

In its “2023 Annual Benchmark Report” released last week, Class found the combined costs for investment and administration expenses and auditor fees were 0.66 per cent of the average net fund assets as of 30 June 2022, based on anonymised and aggregated data drawn from the tax return data of 186,000 funds on the Class Super platform.

The report noted since the middle of 2021, audit fees have declined, administration expenses have remained steady and investment expenses have increased, driven by inflation and market movements.

“From 1 July 2021, with the introduction of auditor independence, many funds had to switch to a new independent auditor and first-year audit costs were expected to be higher. However, there has been a decline in both average (-4.8 per cent) and median (-1.8 per cent) audit fees from the 2020 financial year to the 2022 financial year,” it stated.

“Many auditors now offer integrated audits with SMSF administration software, which has helped reduce the audit fees. Additionally, auditors have been able to leverage technology and processes to scale their businesses and keep audit fees competitive.”

It highlighted changes to accounting and administration resulted in moderate increases to average (5.0 per cent) and median (4.4 per cent) expenses from 2020 to 2022, which could correlate to annual inflation rates of 3.9 per cent and 6.1 per cent in the 2021 and 2022 financial years, respectively.

In comparison, the increase in investment expenses was much higher for average and median investment expenses, which grew by 23 per cent and 160.9 per cent respectively from 2020 to 2022.

“Investment expenses typically encompass a range of fees, including adviser fees, investment management fees, platform fees and rental expenses (for properties),” the report added.

“It is expected that some of the fee increases within this category can be attributed to the proliferation of trading apps and investment platforms and the associated trading volume increase during COVID lockdowns by SMSF members in FY21 and FY22.”

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital