Does size really matter with SMSFs?
The debate swirling around SMSF fees and minimum balances is misleading and often fuelled by those with a vested interest.
Something that really bugs me is hearing people saying there should be regulations around who should be allowed to establish an SMSF. Typically they suggest a minimum of $200,000 and preferably think it should be above $500,000. A verifiable knowledge of investment markets is often thrown in for good measure.
I have only two criteria for setting up an SMSF – people need to be genuinely interested in managing their own retirement income and they need the time to do it. In my experience, if they are interested they will find the time. To quote Lucille Ball, “if you want something done, ask a busy person to do it.”
This is why most SMSF trustees are nearing or in retirement; at this stage of their life their retirement income suddenly becomes very important to them and they want to take control of it.
But the small minority of younger people – Gen X and Gen Y – who want to handle their retirement savings earlier in their working lives should not be discouraged. The fact they are assuming this responsibility should be encouraged.
For this reason I believe the current debate about SMSF fees is something of a red herring. Obviously, a person with funds under management of $50,000 will have a higher expense ratio than someone with $500,000, but if they are comfortable with this then that’s no reason to stop them going down the SMSF path.
Remember, too, the latest ATO figures show SMSF fees on a gradual downward path, a product of higher funds under management and greater competition.
In particular, questions have been raised about administrators waiving their SMSF establishment fees. The argument is that the potential trustee is somehow being fooled into thinking it’s a free service. That’s simply not the reality.
I think it reasonable to assume that someone deciding to establish an SMSF will have a keen interest in all aspects of what’s involved, whether its fees, investing, legal, accounting or auditing. They will know there will be fees and provided the administrator spells out what they are in full detail then there can be no misunderstandings.
There’s another aspect to this. Free set-up costs allow a potential trustee to decide whether an SMSF is the right option for them. Although there will be an exit fee, it allows people to sign on at a relatively low cost to determine whether their interest was fleeting or deep-seated, and, most importantly, whether they have the time.
What budding trustees have to do is their homework. It is critical they understand exactly what’s involved in the fee structure involved: for example, will it lock you into more expensive ongoing services?
They should shop around. Compare administrators to determine what they are offering, the cost, both the establishment fee and future costs. Also, consider what I call the human factor. If you have a genuine rapport with a person and believe they will look after your best interests, then that can be worth a few extra dollars. After all, it’s a long-term investment.
Olivia Long, CEO, SuperGuardian and Xpress Super