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» Articles - SMSF Administration and avoiding the percentage trap
SMSF Administration and avoiding the percentage trap
Self Managed Super Funds must have annual accounts and audits done, and as such administration services are a non-negotiable. For those who run businesses, you would be accustomed to your accountant and book-keeper providing these services. How would you like it if your book-keeper quoted her fees not as a set amount per hour, or a fixed amount per month, but rather as a percentage of your turnover?
“Your business turned over $200,000 last quarter, well our fee is 1% so that will be $2,000 thanks”. A reasonable person might ask, “but how many hours work did you do to justify me paying $2,000?” To which the book-keeper would reply something along the lines of, “well the more you turn over, the more complex your work, and so that’s the way we charge. If my book-keeper told me that, I’d be looking for a new book-keeper, and I hope you would do the same.
There are some fees where a percentage basis makes sense, usually where the percentage calculation acts as an incentive for the service provider. A perfect example would be a real estate agent’s fees. You want the agent to get the highest possible price for your property, so paying on a percentage basis acts as an incentive for the agent. The higher the price they achieve, the more they get paid. Quite reasonable in my opinion.
However SMSF administration is not in that category. Indeed this isn’t just an SMSF issue. All of the Industry and Retail super funds are the same. Their administration costs are bundled in with the fund manager fees, and the whole lot is charged as a percentage.
Is it really fair that because you have $100,000 in your super fund, you pay twice the fee of someone with $50,000, and 10 times the fee of someone with $10,000? Is there really 10 times the work?
This issue was top of mind for me because I saw some advertising in the weekend newspapers quoting SMSF admin services “starting at just 0.99%, capped at $4,990pa”. This is only administration. Any advice costs extra. For an SMSF which trades 10 shares a day, this may well be a fair price, but for an SMSF that owns a single property, or perhaps a basket of shares that changes little throughout the year, this appears extraordinarily expensive. The thing is, with SMSF administration charged as a percentage, we’ll never know if the fund got good value for money. In fact what I suspect occurs is that some funds subsidise others.
Don’t fall for this trap. When selecting your SMSF administration provider, pay for what you need. Percentage based fees make sense in some circumstances, but SMSF administration is not one of them.
For more information, or to discuss your specific situation, please contact me directly.
Paul Benson
SMSF Specialist - Owner / Principal
Guidance Financial Services Pty Ltd
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 on the discussion forum) and/or request professional member(s) to contact you directly.
