SMSFs ‘equivalent value’ to APRA funds at $200K: Rice Warner

A new report from actuary Rice Warner says self-managed super funds with balances of $200,000 or more provide “equivalent value” to retail and industry funds, and balances with $500,000 or more are generally a “cheaper alternative” to APRA regulated funds.

Commissioned by the SMSF Association as an update to a report prepared for ASIC in May 2013, Costs of Operating SMSFs, the report aims to dispel what the group believes are lingering myths about the ongoing costs of running an SMSF and the appropriate size for an SMSF.

It also addresses market changes in SMSFs which the SMSF Association believe have dramatically altered the landscape.

“The reductions in fees for SMSFs and Retail funds and the increase in fees for Industry funds since our 2013 report have changed the relative competitiveness of SMSFs in comparison to the APRA regulated funds,” the report states. “It is also clear that fees considerably lower than those on pricing schedules are being charged to some SMSFs which means that they are competitive even at small sizes.”

The report tackles several assertions made by ASIC in a fact sheet released in October last year, including an estimate that SMSFs required 100 hours per year and cost an average of $13,900 to run, which SMSF Association CEO John Maroney called “not a typical figure”. Maroney suggested that around $5,000 would be more accurate.

The report doesn’t fix on a specific set of costs due to various overlaps, but does compare SMSFs of different sizes to APRA-regulated funds.

It found that SMSFs with $100,000 or less “are not competitive in comparison” and would only be appropriate “if they are expected to grow to a competitive size within a reasonable time”. An analysis of these funds, however, showed that the majority of these funds do grow, the report added.

SMSFs with between $100,000 and $150,000 are competitive if the trustees use cheap providers and do some of their own administration, it states, while those with $250,000 or more are competitive with full administration – as long as its one of the cheaper services.

At $500,000 SMSFs are “generally the cheapest alternative”, the report states.

“For SMSFs with only accumulation accounts, the fees at all levels are lower than the lowest fees of APRA regulated funds,” the report continues. “For SMSFs with pension accounts, only the highest full administration fees exceed the lowest fees of APRA regulated funds.”

Data from the report was sourced from access Rice Warner received to the “anonymised expense, cash flow and balance information” from 100,000 SMSFs courtesy of BGL Corporate Solutions and SuperConcepts.