Rice Warner research throws fresh light on SMSF cost

Nov 23, 2020, 14:20 PM

A research report by the actuarial firm Rice Warner offers clear guidance to existing and potential self-managed super fund (SMSF) members whether this form of superannuation could be cost-effective and the right retirement savings vehicle for them.

SMSF Association CEO John Maroney says the very important decision of choosing the right superannuation vehicle is one that should be guided by evidence and specialist advice, and this Rice Warner report, sponsored by the SMSF administrator SuperConcepts, certainly provides the data on which to base an informed decision.

“This research updates a report Rice Warner prepared for ASIC in 2013 and used to inform regulatory guidance. Additionally, for the first time the research is based on actual data culled from about 100,000 SMSFs which provides valuable evidence to guide that advice and should be a key reference point for all interested parties.”

The 50-page research report has found that SMSFs with balances of $200,000 are as cost effective as Industry and Retail funds and SMSFs with balances of $500,000 or more are generally the cheapest alternative.

Maroney says: “This research should finally lay to rest any arguments that most SMSFs are not competitive on cost compared with the APRA-regulated sector, with the report graphically illustrating that the reductions in fees for SMSFs and Retail funds and the increase in fees for Industry funds since the initial report has changed the relative competitiveness of SMSFs in comparison with the APRA-regulated funds. 

“It is also clear that fees considerably lower than those on pricing schedules are being charged to some SMSFs which means that they are competitive even at small sizes.

“This is welcome news for the SMSF sector as the cost of running SMSFs, especially those funds with balances below $500,000, has been used as a way of undermining the sector’s credibility. This report should bring that false analysis to an end.”

Maroney says the report also highlighted that SMSFs with less than $100,000 are not competitive compared with APRA-regulated funds, and that funds with less than $50,000 are more expensive than all alternatives.

“The finding is not surprising, and simply reinforces the Association’s mantra that SMSFs are not for everyone. But it should be added that many SMSFs understand they are paying higher fees initially, knowing their cost structures as a percentage of their funds’ assets will fall as they grow to a competitive size. For this reason, the Association remains adamant there should be no minimum balance, especially as the report’s analysis of these small funds shows that the majority do grow.”

The report found that for balances of $250,000 or more SMSFs become the cheapest alternative provided the trustees undertake some of the administration, or, if seeking full administration, choose one of the cheaper services.

On the issue of investment returns, the report finds that the SMSF sector has delivered equivalent returns to those of the APRA sector since 2005 in both good and bad years. “These results may not support the proposition that SMSFs are better investment managers than APRA funds, but they do indicate that members of SMSFs, in aggregate, are not disadvantaged when compared with APRA funds.”

Rice Warner Executive Director Michael Rice says his team benefited from analysing a database exceeding 100,000 SMSFs that allowed for accurate allocation of expenses. 

“In the seven years since the previous report, average costs of APRA regulated super funds have risen whereas SMSF costs have fallen.  It is cost-effective to open and maintain an SMSF account at much lower levels than declared by the Productivity Commission and ASIC.  Separation of the results into those funds holding or not holding properties gives a more accurate picture of the cost structures.”

Grant Christensen, CIO of SuperConcepts, says the impact of the lower SMSF operating costs means that there is a lower threshold at which funds become competitive. “While the issues with small value funds will always exist, it has been encouraging that they grow quickly. 

“Other positive signs are the age at which SMSFs are being established is now in the 35 to 44 age bracket and a significant proportion of small business owners deciding to forge their retirement destiny.”

Download the report


About the SMSF Association:

The SMSF Association is the peak professional body representing the self-managed superannuation fund (SMSF) sector which is comprised of 1.1 million SMSF members who have over $700 billion of funds under management and a diverse range of financial professionals servicing SMSFs. The SMSF Association continues to build integrity through professional and education standards for advisers and education standards for trustees. The SMSF Association consists of professional members, principally accountants, auditors, lawyers, financial planners and other professionals such as tax professionals and actuaries. Additionally, the SMSF Association represents SMSF trustee members and provides them access to independent education materials to assist them in the running of their SMSF.