Interact
Member access
Browse
SuperInvestor TV
Share
» Articles - DIY benefits include cost reduction and gain in control
DIY benefits include cost reduction and gain in control
There are many reasons why people have self-managed super funds. Reducing administration costs is one reason, while the main reason is gaining control of your financial destiny by direct investments rather than by handing the money to someone else.
Q I have read that you need to have at least $250,000 before considering a self-managed super fund and that an average annual cost of a fund is $1500. I have a fund that costs roughly $6000 annually with a net value in a good year of $370,000. What should the total yearly costs be for a self-managed super fund with a net value of $250,000, including auditing charges, accounting charges and investment adviser charges?
A The figure of $1500 a year in accounting costs for a self-managed super fund is not the average cost but the lowest cost charged by many accounting firms. Some fund administrators will charge less but they tend to be restrictive in the type of investments allowed. If one of the main reasons for having a self-managed super fund is the flexibility it gives the members, it does not make sense to use a cheap administration service that restricts investments.
The yearly accounting cost, including the audit fees, should be based on the amount of work required. Too often companies providing administration services to self-managed super funds base their fees on the value of investments and not the amount of work required to do the job. What really impacts on the annual cost of a fund is how many members it has, whether they are all in accumulation or some are in a pension phase, the number of investments the fund has and whether they are traded regularly.
Where a fund has two members both in accumulation phase, $1 million invested long-term in several managed funds and a few direct investments should have relatively low administration fees. A fund with four members, two of whom are in pension phase, and $350,000 invested in more than 30 companies that are regularly traded should cost more.
The accuracy of the record-keeping done by trustees of a fund also impacts on the yearly cost. Trustees of a self-managed fund who prepare reconciled summaries of the financial activities of the fund, and provide all investment records to the accountant in a well-organised manner, help keep the yearly accounting and audit costs to a minimum.
The question of what the investment adviser charges is a contentious one. Unfortunately, too many fund members are charged fees for investment advice unrelated to its quality or quantity and are charged a trailing commission that is based on the value of the investments in the self-managed fund .
The practice of bundling investment advice with the yearly administration costs of a fund tends to be done by those service providers that come from more traditional commission-based financial advisers. In these cases, the members of the super fund are often paying higher costs than they would be if they were in an externally managed super fund, but they don't have the investment flexibility that should be the main advantage of a self-managed super fund.
Q I am a single woman aged 55 and have a superannuation fund managed through my employer and would like to set up a self-managed super fund. Could you please advise.
A You have the choice of having a family member become a trustee and member with you, or you can set up a company where you are the sole shareholder and director to be the trustee.
For more information, or to discuss your specific situation, please contact me directly.
Max Newnham
TaxBiz Australia
Now that you have read this, what do you think? Do you have other ideas? Please share you views with other members (eg by blog or discussion form) and/or request professional member(s) to contact you directly.
