Tuesday, 23 April 2013

SMSFs – costs

There seems to be a fair debate about whether running an SMSF is more or less expensive than using an industry or retail fund.  I imagine there are a lot of vested interests at play.  But intuitively, if you have a large super balance and put in the effort to run your fund efficiently, it is likely to work out more cost effectively to manage it yourself.  If you have a small balance and use a bevy of high cost advisors, your balance will be frittered away before you know it.

So, as I mentioned in my 17 April post covering the basics of SMSFs (http://www.millionaireonheels.com/2013/04/smsfs-basics.html), it is generally recommended that you do not start a fund until you have a balance of $200,000 to $250,000 to invest.

To test that, I’ve outlined below the major costs you are likely to incur in establishing and running an SMSF, along with a typical range of fees.  I’ve then calculated what that would mean for a fund balance of $100,000, $200,000, and $500,000.

The major categories of SMSF costs include:
  • Establishment costs
  • Minimum ongoing costs to meet regulatory requirements
  • (Optional) administration and accounting costs
  • (Optional) investment advice costs