SMSF investors need a minimum of $500,000 either in their super fund or available through equity in shares or property to make the creation of an SMSF worthwhile, managing partner at Owen Hodge Rolf Howard told SMSF Adviser’s sister publication, The Adviser.
Those who do not have a minimum of $500,000 to invest may find it “very difficult” to justify the fund’s set-up and ongoing maintenance costs, Mr Howard said.
“Some practitioners who offer financial advice don’t tell investors this as their focus is on seeking ways to increase their revenue streams to the financial detriment of their clients.
“[Unfortunately,] investors are being coerced into creating SMSFs with as little as $250,000 to invest,” Mr Howard said.
He also indicated that it is imperative to have an investment plan prior to establishing an SMSF and also to discuss the various investment options with an accountant.
“Further, a significant level of discipline is also required to effectively run a fund. Experience has demonstrated that many struggle to separate the fund’s activities from other investment expenses, including personal and business,” Mr Howard said.
Psst, Rolf Howard, managing partner at Owen Hodge, consider this sage and ageless advice: “It is better to remain silent at the risk of being thought a fool, than to talk and remove all doubt of it.”
see Mrs Goose, Her Book//Maurice Switzer//1907.
I think Mr Rolf Howard either needs to understand the meaning of “Dubious” or perhaps look at the number of funds which are set up and still have less than $500K and learn some of the SMSF strategies to understand the real world.
Great debate, but pointless Mr Howard. How are you to decide what balance is just? Get with the times. Trustees are getting wiser, running a SMSF is getting cheaper and those who don’t change with the market will fail. I argue, the SMSF we established for two individuals earning $250,000 per annum (PAYG) with a smaller balance of $100,000 was ‘in their best interest’. They are property focused trustees who will have the debt paid off in 7 years. Regardless of growth, this is a cash flow play.
That is precisely what I’m saying, Ian.
As a professional adviser, it is an endless source of frustration that people are misinformed as to the options at their disposal.
[quote name=”Wayne Leggett”]Question for Ivan & Karen.
Do either of you have direct property or borrowings in your SMSF?
If the answer is “No”, you don’t need a SMSF or the associated additional costs.
Refer my previous comment.[/quote]
Hi Wayne, yes I do hold property in my SMSF. Are you saying that if I wanted to invest in shares there in no need for an SMSF? As I have a diversified share PF plus property in my SMSF, and I achieve a satisfactory return at a beneficial tax rate. Moreover, we have 100’s of clients who do the same. Aplogies if I misread your post, however, SMSF are about control, and if in my SMSF I don’t need to pay for the salaries and bonuses (and airfares and entertainment) of inhouse investment managers at industry funds….I know the Industry Funds model and asset allocation very well so I am happy to be challenged.
Cheers Ivan
I think the other thing people often miss when criticising the decision to start a self managed fund with low balances is that it is a “vehicle for life”. A client with $100k today but realistic aspirations to have $500k in the near future is often well advised to get into their SMSF early. Even if their costs initially go up, they will save in the long term by minimising the costs of moving later (eg CGT on asset sales etc). Of course the precise trade off will depend on an enormous number of factors – including how the current fund actually works and how it determines its fees. However, the key point made by a number of other responders to this article is that it is silly to assume that a low balance fund only exists due to poor advice. A low balance fund can exist for a great many reasons – some of which will be very very good ones.
[quote name=”karen”] I have turned my superfund around from a initial rollover of $50,000 5 years ago to $500,000 today! [/quote]
Karen that is a fantastic story, and many other australians have been successful using an SMSF and taking control much like yourself. Well done!
No I dont have property. I have been able through the ability to invest directly into the market, choose specifically where I want to invest and when to buy and sell I have turned my superfund around from a initial rollover of $50,000 5 years ago to $500,000 today! My only contributions are the mandated employer contributions. This in turn with utilising a smsf specialist firm for accounting and compliance has seen my profits soar whilst my compliance costs have been kept low. I would like to see the fund managers be able to do this
Guys, as long as the client has eyes wide open and understands what they are doing the account balance is not relevant. If we only did things at the lowest cost then nobody would drive even a moderately priced car or live in a big house. When lawyers or others get hot under the collar about something outside of their discipline, why give them oxygen? Ignore them and continue with giving proper advice according to our clients needs and our own ethics.
Question for Ivan & Karen.
Do either of you have direct property or borrowings in your SMSF?
If the answer is “No”, you don’t need a SMSF or the associated additional costs.
Refer my previous comment.
[quote name=”Karen”]I run my own super fund for control, and year on year I significantly out-perform the market.[/quote]
Like about 1m other australian or 500k other SMSFs. People want control…..control is obtained through an SMSF not through industry funds investing in dud investments and still taking fees.
Why aren’t people like this forced to say
” if you are going to set up a SMSF with [b]OUR[/b] particular firm you will need $500K to justify it”
Why are these people able to spread these misleading myths?
Likewise what Mark Wilkinson says below both ATO and ASIC have publicly available studies showing the preposterous nature of this claim.
I run my own super fund for control, and year on year I significantly out-perform the market.
Rolf Howard’s position is non-sensical. The only valid reason tfor creating a Self Managed Super Fund is if you wish to do something in suepr that cannot be achieved in any other form of superannuation fund.
As far as I am aware, the list of such things is limited to:
1. Buying an asset from a member;
2. Selling an asset to a member;
3. Acquiring real estate;
4. Borrowing money
If you are not intending to do any of these, what is the benefit of a SMSF?
If you ARE intending doing any or all of these, you MUST have a SMSF, in which case your account balance is largely irrelevant in the decision.
Who does this guy deal with? I wold love to earn the sort of fees that would make a minimum balance of $500,000 essential to make a fund cheaper in a master fund. Out of all my funds, only a handful have costs greater than $5,000. As average fees are usually at least 2% costs charged are considerably higher. I wonder if his client base is focused around larger Super funds?
[quote name=”Mark Wilkinson”]Perhaps Mr Howard should refer to studies carried out by both ASIC and the ATO. Both indicated that provided the trustee was prepared to assume some of the admin responsibilities of the SMSF, then the break even point re cost is closer to $200,000 to $250,000.[/quote]
I believe the recent Rice Warner Report stated $500k as a minimum also….thats from memory so correct me if I am wrong.
Does this guy REALLY think that $500k should be the MIN? has he just pulled his head from under a rock..? someone with $200k in super would be paying inexcess of 1% ($2000) per annum in all of the top retail or industry funds… I know of half a dozen smsf admin/auditors that run on less than $1k per annum… not to mention the countless investment options an SMSF opens up.
…and lawyers dishing out investment advice…? nice.
As a lawyer, I can only say that generalizations are a bit silly. Our SMSF was started in 2001 with about $100,000. The returns have amply justified the decision to stop enriching the big life office which later on in the GFC savagely cut surrender values on 2 old life fully paid life policies left with them. The “professionals” managed our money a lot worse than we did.
Why does the issue of setting up an SMSF always come down to costs? This is just one factor in the overall decision to set up a SMSF. What about the consideration of control, flexibility, and transparency?
I wonder what Mr Howard’s own roll in balance was even allowing for inflation from way back when?
I wonder where the $500k figure comes from that Mr Howard uses?
I wonder how at 0-75% of assets rolled in, I could justfy to my clients $3750 in annual fees to run their fund for them.
Perhaps Mr Howard should refer to studies carried out by both ASIC and the ATO. Both indicated that provided the trustee was prepared to assume some of the admin responsibilities of the SMSF, then the break even point re cost is closer to $200,000 to $250,000.
Mr Howard I strongly disagree with your minimum balance. A minimum balance of $500k is outrageous, times have changed in the SMSF industry, administrators and lawyers cannot get away with gauging SMSF members with outrageous set up fees.
There are many players in the market including the corporates which has resulting in a decrease in annual administration fees. Investors by shopping around can receive annual administration fees for $1000 per annum (this is the Redwood Advisory price) including audit. Therefore, if an investor has $100k in superannuation this is 1% of the net assets of the fund. If they have $200k in super it is 0.5% if they have $500k it is 0.2% of the fund. Further, many are offering a free set up.
Cheers, Ivan
What a load of garbage. It might be true because of big city fees charged by lawyers and accountants. We have over 100 SMSF’s with less than $500,000. They were established for a particular purpose or with a particular goal in mind. Our experience is that we can set up & run SMSF’s for less than half the cost of the big city guys and,also based on experience, the quality of our work is as good as or better than what they were previously receiving. There are undoubtly shonks out there but they are a minority. Once again, someone has made a generalised statement, which they can’t support, and have given more ammunition to the opponents of SMSF’s. Wake up!
A lawyer talking about fee gouging is always going to lack credibility. A $500k minimum would rule out at least one third of all funds currently in existence so this view casts aspersions on a significant body of professionals. Typically accounting and audit fees on a $300k fund would be 0.7%-1% so why is this hard to justify?
Is the legal advice that the minimum asset level to run a SMSF of $500k also financial advice as understood by the Corps Act?