In saying this, I know I am at odds with what the retail and industry funds say, as well as many other self-appointed experts on our sector of the superannuation industry. They say the rule of thumb should be at least $500,000, as well as potential trustees being able to demonstrate knowledge of investments and the rules and regulations relating to SMSFs. There have even been suggestions of establishing qualifications for people proposing to set up an SMSF.
I could not disagree more. In saying this I am in good company. When the final report by the Cooper Review has handed down in July 2010, it gave the SMSF sector a clean bill of health. But before quoting from the review, it’s worth noting that Jeremy Cooper, who headed the inquiry, has publicly acknowledged that he was sceptical about SMSFs before this comprehensive inquiry began. But the evidence he and his co-panellists heard changed their thinking.
This is what the review said. “The vast majority of submissions supported the view that the SMSF sector, with a few exceptions, generally works well. This view is shared by the Panel. The review process has generally confirmed that the SMSF sector is largely a successful and well functioning part of (the) superannuation system.
“The Panel suspects that the most significant aspect of its work in the SMSF sector is that it has not recommended wide ranging changes — a minimum SMSF asset size or specific trustee educational requirements, being two examples. The Panel’s SMSF recommendations are not dramatic and largely relate to tinkering around the edges on compliance, audit, advisor competency and like measures. These changes are aimed at ensuring that this growing sector can continue to prosper in an enhanced environment.”
Note the comment about fund size – no minimum. As the review said, “there has been a long running debate about whether there should be a minimum SMSF asset size, with many industry participants questioning whether an SMSF with $200,000 in assets could be cost competitive with large APRA funds. The Panel does not believe there is a need to mandate a minimum SMSF asset size which would only act as an artificial barrier to entry; within the choice architecture model members have the right to choose”.
Since the Cooper Review has been handed down, administration costs for SMSFs have fallen; certainly they are competitive with industry and retail funds. At the same time, the investment performance of SMSFS has been a couple of percentage points higher compared with the 3.4 per cent retail funds delivered in the 10-year period to 30 June 2012.
SMSF administrative costs are falling and investment returns are on a par with or better than the industry average, all evidence that not only did Cooper get it right but that the growing number of SMSF trustees are continuing to repay his vote of confidence in how they handle their superannuation. The case of a minimum of funds under management for SMSFs has not been made.
Olivia Long is the chief executive officer for SuperGuardian, Xpress Super and PortfolioGuardian.
A SMSF is a structure for the long term. The minimum viable amount can’t suddenly appear ——- it has to be contributed over a period of time!
It might be possible to park it in a bank or insurance company fund until it gets to the critical mass ——but then you would not have control would you?
The reality is that in the early years of an SMSF there is a cost for having control. Hopefully this swings around in the last half of the SMSF’s life.
Professional fund managers must be loving this debate!
Hi George
If a person has $200k in a retail fund the cost would be about 1.5% to 2%.: about $3000 to $4000 per annum. Some funds like QSuper are cheaper.
The big benefit (cost wise) is that when a fund grows significantly (say to a $1 miilion then the SMSFs fees will probably be about $3,000 compared to $8,000 to $10,000 or more.
I have clients with $5 mill in superffunds and the annual accounting and audit cost is about $3,000. The cheapest industry fund would charge about $30,000
Gerard
This is a rather short sighted comment. A fund with, say, $200k invested at a modest (by today’s market)will receive $8k income. Let’s say that the accountancy fee, audit fee, regulatory etc. fees are $2k. This is 25% of the income which some would say is far too h1h for the privilege of managing one’s own fund. Others might say that $2k is reasonable for control over one’s destiny.