Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Time for an SMSF?
There has been somewhat of a Cold War between the industry and self-managed sectors of Australia’s superannuation environment over the last decade. Words have been exchanged on a near daily basis, discussing with a particular focus on SMSFs coming at a significantly higher cost than the alternatives and requiring a substantial amount of input from trustees.
Whilst there is little doubt that SMSFs are best suited to those who are engaged with investment decisions and seeking to exert some level of control over their retirement capital, cost has always been misunderstood. That is until now. Rice Warner recently undertook an extensive analysis of the sector, something we covered from the view of financial advisers here.
The results of the report have received substantial coverage in the media as they may effectively break the traditionally lower cost assessment of the industry super fund sector. Within the report, Rice Warner highlights that SMSF costs have decreased since 2013 whilst industry super fund costs have tended to increase. This is something we have been highlighted for several years as technology adoption has effectively commoditised the preparation of annual SMSF accounting and tax lodgement requirements.
When assessing SMSFs versus the alternatives, it is important to strip out what are ‘SMSF-related’ costs from advisory, investment and other fees. Some SMSF-related costs must be covered including accounting and tax lodgments, however, every other cost is subject to the decision of the trustees of each individual fund and can be undertaken themselves if they wish.
According to the report, funds with under $50,000 in total balance are more expensive than every alternative due to the fixed nature of most SMSF costs. For balances between $100 and $150,000 SMSFs only become cost competitive if the trustees undertake the majority of administration themselves. However, once balances exceed $200,000, they are competitive with both industry and retail funds even when the cost of administration, like trading and paperwork is included. For balances over $250,000 the benefits are clear, SMSFs are by far the lowest cost option.
For most financial advisers and SMSF trustees this shouldn’t be eye opening, it has been clear for many years. Unfortunately, the less standardised nature of SMSF cost reporting and delayed access to data from the ATO has made ‘apples for apples’ comparisons incredibly difficult on a year to year basis. One of the key factors regularly misunderstood when comparing an SMSF supported by a financial adviser and an industry super fund, is the level of financial advice received and required.
In the case of industry funds, the advice is generally limited to ‘limited scope’ advice on issues like contributions, pensions and withdrawals, with most completed online or via the phone. These fees are generally included in the ‘investment’ fee and paid regardless of whether advice is actually required by the member. Compare this to ongoing service from an adviser, which includes day-to-day advice, investment management, administration, superannuation, end of financial year and other advice opportunities. Obviously, financial advice as opposed to SMSF administration costs should be excluded from cost comparisons.
