Mr Baker said there was a “considerable rise” in the official average costs of managing an SMSF in the ATO’s 2012-2013 SMSF statistics.
He believes the rise in costs could be due to the fact SMSF tax returns were changed for the 2012-2013 year in order to collect all cost data, deductable or not.
Previously, Mr Baker believes the ATO was not collecting data for SMSF pension divisions in the annual tax returns it received since pension divisions are tax exempt and therefore costs are not deductable.
“As a result, these costs were just disappearing – a big deal given that a substantial portion of SMSF assets are in the pension phase,” he said.
While these costs are now being accounted for, Mr Baker said the ATO’s operating costs for SMSFs are still understated because they “don’t capture fees and costs in underlying structures such as trusts, and other investments that SMSFs make”.
“However, they are also overstated as they include deductions that would not be considered MER-style costs by APRA funds, e.g. interest, depreciation, and insurance premiums,” he said.
Based on taxation statistics for the prior year, Mr Baker said these account for approximately 30 per cent of SMSF deductions.
“Considering past taxation statistics, our view is that you would deduct approximately 25 per cent net from the ATO’s 2013 SMSF costs to create a reasonable comparison with APRA funds,” said Mr Baker.
Compared to the retail super funds or not-for-profit defaults, Mr Baker argued a super balance would need to be in the $1-2 million band before average SMSF costs are attractive.
“Equally, claims of SMSFs being cost effective at $200,000 are clearly rubbish, on average experience at least,” he said.
“At that level, average SMSF costs are two to three per cent – multiple of any major not-for-profit or retail simple super product, and equal to or higher than legacy retail products.”
Mr Baker said the other issue is around what SMSFs theoretically cost and what they actually cost.
Older SMSFs, he said, are probably paying higher costs on average than newer SMSFs.
Adding in all the extras, he said “keeping in mind SMSFs are a complex product” also means the actual price can be much higher.
Mr Baker said SMSFs are therefore much the same as any other “expensive status symbol”, such as cars and air fares.
“The new data indicates that in many cases, when a member switches from a collective fund to an SMSF, their overall fees and costs go up significantly,” said Mr Baker.
“They may reduce investment costs, but often incur a raft of new accounting, administration, and regulatory costs that far exceed the savings they think they are making.”
Another year and another article using SMSFs as a punching bag. Let’s try and get some new and informative material this year guys or I for one will simply start deleting anything that I see associated with Tria or Andrew Baker. I don’t really want to unsubscribe as value much of the excellent content that SMSFAdviser produces.
Lies, Damn Lies & Statistics. A very average article. From a firm that continually has a bias against SMSFs
The one cost that is never taken into account in these figures is that of the members/trustees time in administering the fund.
Having said this, costs are the least relevant part of the conversation. It seems that it is not only the industry funds that place way too much emphasis on fees.
Like every thing in life, you get what you pay for. If the members want/need the features provided by an SMSF, the fees are irrelevant.
[quote name=”Stuart”]….The ones “expert” at hiding costs are the managed funds and fund managers and from approx. 30 years in the industry, that has always been the biggest problem – trying to work out what the actual costs were and where they are reported…..[/quote]
+1
Selling fees/spotting fees/consulting fees/retail and wholesale fees/one off fees/expert opinions fees/management fees…etc etc etc. More snouts than there are troughs to put them in 🙂
There is more transparency in a brick wall than there is in the retail/wholesale/industry super sector.
If smsfs are the pots they Andrew Baker and his vested interest mates must be the kettles 😀
Come on everyone, there’s two sides to every story.
I agree with every sentiment noted below. The ones “expert” at hiding costs are the managed funds and fund managers and from approx. 30 years in the industry, that has always been the biggest problem – trying to work out what the actual costs were and where they are reported. This article is the biggest pile of rubbish I have had the misfortune to read.
The costs are manufactured largely by regulation. I suppose that is what he wants more of?
If you think a person a fool the best way to prove the point is to allow them to continue speaking (or in this case writing).
Why is it that so many experts think that that cost is the over riding issue when it comes to SMSFs?
[quote name=”Tim”]Why do you even bother reporting rubbish like this SMSF Adviser? Personally I like to read informed independent pieces rather than spin from self-interested parties who have no qualms about making half-baked sweeping self-serving comments that help no-one at all.[/quote]
+1
Agreed …. its one thing for Andrew Baker to consistently embarrass himself but does the smsf advisor have to be a part of lowering the standard of collective analysis of smsf advising
Having administered over 3000 SMSFs and seen the assets held and costs incurred by these funds I can honestly state I’ve never read an article further from the truth.
We have a number of satisfied SMSF trustees with balances of $200 – $500k who are successfully running their SMSFs and maximising returns without complicated investments and strategies.
This article is rubbish.
Another day Another dollar Another vested interest story from Andrew Baker. There are so many holes in the above superficial rant its not funny. Seriously Andrew why don’t you put your time and energy into developing a product to compete with smsfs instead of attacking a sector that has single-handedly made all trailing commission financial planners have to actually justify their existance 🙂
Why do you even bother reporting rubbish like this SMSF Adviser? Personally I like to read informed independent pieces rather than spin from self-interested parties who have no qualms about making half-baked sweeping self-serving comments that help no-one at all.