SMSFs established with a balance of $200,000 or lower are “at risk” of running down the value of their fund and should consider all the options in the marketplace before selecting the self-managed route, Centric Wealth’s technical specialist, Natasha Panagis, told SMSF Adviser.
“The costs of running an SMSF are quite high… [we] think that adequate level is around the half-million mark to make it feasible,” Ms Panagis said. “The higher the balance, the fees can potentially drop.
“The investment side is important as well; having more funds available will allow you to actually be… more well diversified,” she added.
Trustees should also be considering assets such as property to make an SMSF “worthwhile”, Ms Panagis said.
“With SMSFs you’re able to invest in any asset that’s allowable under super law – shares, managed funds and the like – but you can do that in any fund.
“The difference with SMSFs is that you have access to invest in other types of… investments such as direct property… being able to do that in an SMSF is advantageous in comparison to other funds.”
Lower SMSF account balances would make it difficult to invest in property, Ms Panagis added, given the fund could potentially be highly illiquid.
“You wouldn’t really have any reserves or cash in the fund to be able to maintain that property which is one of the main reasons, or contributing reasons, why we suggest at least half a million balance.”
A previous SMSF Adviser straw poll showed practitioners reject the concept of a minimum balance for SMSFs, with Capital 19 Global Investments owner Matthew Jones saying “It’s a personal choice and I’d be reluctant to put a dollar figure on it, because I think the other factors are a lot more important.”
interesting
so if i can replicate market returns in my SMSF and the fees are only trading and Admin / Audit is it so expensive in comparison?
Not really, the extra return from no management cost increase my return which is higher than the fees, therefore i am better off? Simple economics… Shame most adviser dont understand basic economics.
ASIC is about to publish a report on the subject which includes a study by Rice Warner on the optimal size of SMSFs versus other super funds.
It is pretty obvious that someone making rational economic decisions would not set up a SMSF with a small balance. It is disingenuous to argue that fees don’t matter. That said, there is no readily definable minimum dollar number for SMSFs because there are too many variables, but the number is definitely south of $500,000.
Wait a week or so and revisit the topic with some data.
Oh No – Accountants wont like this article. They think that if you have a pulse then you should have a SMSF, regardless of the balance. While the article’s point is to general for everyone, I think the comment has quite a bit of merit. The best part about FOFA is that accountants will now need to actually consider the clients circumstances before recommending a SMSF for anyone who can fog a mirror.
The figure is ridiculous! Many clients do not take ownership financially of their fund (and maximise contributions) when they feel they have limited control. If they prefer property as an investment and believe that their funds are well invested they are more likely to take control and manage their contributions better. As far as costs to manage an SMSF, they can be far less than some fund managers charge depending upon how complex their fund is.
Talk about a conflict of interest….its like listening to President Mugaba explaining democracy…
What happens when the clients put into SMSF by Accountants & Tax Agents with low balances realise they have been dudded? Who’s going to pay for that? It could be easily be seen that small operators will be wiped out within 5 years.
Not sure I have read more garbage than what is in this article. Why is $500K so important. I have hundreds of clients with lower balances doing very well having got THEIR money away from fund managers and other advisers furiously clipping thier tickets earning their respective returns. The sooner these people have to work for their commissions, the better!
That figure is just ridiculous, thats like saying “you can’t set up your own business untill you are a successful bussiness person”. Funds have to start somewhere but only if a member can make the nex=cessary contributions to grow it but this takes time. Fees should not be the issue.
What about the etstate planning issues?