Self managed super - what are the costs?

[markrmau]

I often see comments saying that self managed super is not worthwhile unless you have about $200k.

Why? What are the additional complience costs? Would it be true for people who already have appropriate investment information?

 

[DaleGG]

Hi

The main reason that ASIC suggests that amount is to make it unattractive for people with very little funds in Super to create one of their own; and, to stop sharks from selling you something that is not viable.

It might be better though to consider instead:

what returns do you currently get?
what returns do you think you can get from your own investing?
will those returns less annual costs be more than the existing funds?

If you genuinely believe that you can perform better than the funds then you might find that self managed super makes sense to you.

The annual costs will vary but allow about:

$100 pa to Government agencies for registration and filing fees
$250 to $750 for audit costs
$500 to $1,500 for accounting costs

Why so much variation?

Because it will depend upon the quality of the information that you present to your accountant and the complexity of the issues involved. Furthermore, it will depend upon your accountant and how much they charge.

I hope that this helps a little

Dale

I often see comments saying that self managed super is not worthwhile unless you have about $200k.

Why? What are the additional complience costs? Would it be true for people who already have appropriate investment information?

 

[Prospector]

Hi there
We started (partner and I) our own SMSF perhaps 10 years ago. We are self employed. It was at the suggestion of our accountant. We started off with about $50,000 (that was 10 years ago). For the first two or three years we just left it in the hands of so-called experts (Share Brokers - quite a high profile company) until we realised we were going backwards.

So I (the female half) decided I would be more active in what we were doing. We love the fact that we now control where we invest the money. We sold some shares and bought a canal waterfront block of land; even in a declining property market that land has increased in value by 150%. I researched the share market and invest in the share market and also have some cash at high interest. All of these assets must be kept separate from any personal accounts, and must be in the name of the Super Fund.

There are strict compliance rules but these are easily managed. ASIC fees costs $212 a year, and all transactions you make must be audited. We expect to pay around $3000 this year in accounting fees, but I also give the accountant all the information he needs - he just has to check it (I use MYOB to reconcile both cash accounts; have to get the land re-valued every couple of years, and each share trade is examined.)

For the current value of our Super, the fees are about .6% pa. Try finding a super fund where the fees are less than that!

It is easily the best financial decision we have made, but that might not be the case for others. I do spend quite a bit of time managing it because I am allowed to have some spec stocks under the Trust Deed, and these are somewhat volatile so have to manage that. We are in the accumulation phase at the moment, but will soon change the portfolio to an income one (eg sell the land and buy shares that pay good dividends) in the next five years or so as we reach near draw-down phase.

Hope that helps

 

[markrmau]

Thanks for the comments DaleGG and Prospector. From these figures, it looks like you would want to have around 200k as a starting point.

 

[Julia]

You also need to allow for establishment costs. Mine was just under $700.

Prospector: you mention the payment of ASIC fees so I guess your SMSF is as a Company? Another option (which avoids the annual payment to ASIC ) is to set up the Fund with two (and I think you can have more than two) Trustees. I've done it this way. A disadvantage of this can be that everytime you sign something it requires signatures of both Trustees. This can be overcome by having the 2nd Trustee complete a POA for the purposes of signing of documents in your SMSF.

I'm expecting accounting and auditing fees for last financial year to be somewhere between $2000 and $3000.

Like Prospector, I am much happier having direct control of my investments.
You can still outsource advice if you feel you need to.

Julia

 

[Prospector]

You also need to allow for establishment costs. Mine was just under $700.

Prospector: you mention the payment of ASIC fees so I guess your SMSF is as a Company? Another option (which avoids the annual payment to ASIC ) is to set up the Fund with two (and I think you can have more than two) Trustees. I've done it this way. Julia

Yes, right on both counts! Actually we may not pay any ASIC fees - we have several companies and I think I may have got mixed up with the Super Fund.

And you are also supposed to review 'the trust deed' every couple of years too! This costs around $200. Think I might encourage the kids to be an accountant!!!

 

[Duckman#72]

It might be better though to consider instead:

what returns do you currently get?
what returns do you think you can get from your own investing?
will those returns less annual costs be more than the existing funds?

If you genuinely believe that you can perform better than the funds then you might find that self managed super makes sense to you.

Hi All

Don't be sold on a self managed superannuation fund on the sole basis that it will cost you less money. That is completely the wrong reason to start one.

Although the questions listed by Dale are important, another key question is:
a) How much are you able to contribute each year to the fund?

The reason SMSF are so popular for self-employed people is due to the fact you can claim a tax deduction for the contribution and also self-employed people generally have more ability to contribute excess cash to the fund.

I have seen numerous salary/wage employees start a self-managed super fund with $50,000 or less and make a complete hash of it. Don't get me wrong - the small majority make it work but the large majority don't. Why? Compliance costs. It can cost just as much in audit and accounting fees for a fund with $1M as it does for a fund with $50,000.

The more money you have in the fund the cheaper it is (economies of scale). Lets say a 2 member fund - investing in Term Deposits and half a dozen direct shares and managed funds. The audit fees would be say $350 and the accounting fees could be say $1550. Forgetting the Super Levy of $45 you pay to the ATO each year your compliance costs are approximately 4% of the fund if you have $50,000 invested. The retail funds can do it much cheaper than that.

Don't forget that despite Prospector saying it was the best thing she and her partner ever did - have a look at her situation. They were in a position to put waterfront property into the superfund. Not everyone is going to be able to do this. You cannot borrow through the superfund.

Don't be hung up on fees - if you want the job done properly it will cost you. But at the same time don't start up your superannuation fund on the basis that it is cheaper to do it yourself.

The other point that I would make is that the compliance aspect of superannuation has increased threefold from 10-15 years ago. The ATO are closely monitoring non-complying funds (and also auditors). Gone are the days when you do anything in your super fund and then plead ignorance as a defence.

For the record Mrs Duckman and I have our own superannuation fund and we love the freedom and control we have over our investments - but it annoys me how SMSF are touted as being a brillant strategy everyone (regardless of the amount of super monies held, likely future contributions, knowledge of investments, administration costs, set up fees etc).

Duckman

 

[Prospector]

Hi All


Another key question is:
a) How much are you able to contribute each year to the fund?

The reason SMSF are so popular for self-employed people is due to the fact you can claim a tax deduction for the contribution and also self-employed people generally have more ability to contribute excess cash to the fund. .....

It can cost just as much in audit and accounting fees for a fund with $1M as it does for a fund with $50,000......

The more money you have in the fund the cheaper it is (economies of scale).....

You cannot borrow through the superfund.....

Gone are the days when you do anything in your super fund and then plead ignorance as a defence......


Duckman

Yes, agree with you on all counts Duckman!

And that is why our SMSF was set up - we had a run of high profits and we were able to put the money into the SMSF as we didnt need it for business purposes. We also had several super accounts that we were able to merge with the SMSF, and eliminate those fees too.

The SMSF has become very popular with choice of super fund, and this has resulted in many people suggesting this is the way to go! But on reflection maybe it doesnt suit your average employee. I guess I also associated SMSF with self-employed people, but with super choice, that has now changed. And it does take time to manage.

 

[beachbum]

I started a superfund 8 years ago with the small amount of 22k. I have only traded shares in that period of time and the only extra contribution was when I rolled over 17k from an employer. The fund is now 92k. I trade mainly mid tier resource stocks with tight stops. It just depends on how much time you want to spend doing this. I like the challenge and I'm in control. As far as I'm concerned I take less risk than people who hand their money over to a managed fund. At first it was a hard slog as the costs involved listed by others took a fair wak of 22k and I made my fair share of trading errors. I wouldn't recommend starting with such a small capital base like I did but if you are prepared to put in the effort, rewards will follow.

 

[Bulltrader]

Have been looking at starting my own SMSF. I have approx $60k and the fees seem not to justify doing it. However I've come accross this site:

http://www.nicholasneedham.com.au/costs.asp

which states that they only charge $685 per annum for everything including accounting, audit fees etc, no matter how many transactions and, wait for it, no establishment costs.

What's the catch? Has anyone used them?
Is there some other costs, written in the fine print, which they will come up with once I've signed up? Am I missing something?

Cheers

Bulltrader

PS I'm not in any way affiliated with Nicholas Needham, just want to know if they are legit.

 

[macca]

We have had a self managed super fund for about 7 years, our annual costs are $700 for the accountant and $45 to the ATO.

I have read on other forums that people using NicholasNeedham are quite happy, BUT I have never had any contact with them.

Macca

 

[Prospector]

OK, so now I am curious about my accountants fees. He always says that because he has to audit every single transaction then the fees are high - because I do a number of share transactions.

Last year I did a total of 35 trades, had two bank accounts all of which were documented and reconciled, and use Portfolio Planner that even calculates capital gains/loss. For which I was charged $2700.

Any comments please?

 

[sails]

We have just been hit with a $1550 accountancy bill (including the audit) for the SMSF and like you Prospector, everything was in neatly in order and reconcilled monthly - all the hard work was done for them.

Obviously no real industry standards out there for pricing, so I guess it is a case of shopping around in future.

 

[Julia]

OK, so now I am curious about my accountants fees. He always says that because he has to audit every single transaction then the fees are high - because I do a number of share transactions.

Last year I did a total of 35 trades, had two bank accounts all of which were documented and reconciled, and use Portfolio Planner that even calculates capital gains/loss. For which I was charged $2700.

Any comments please?

Prospector:

You say above "because he has to audit every single transaction".
My understanding was that the accounting and auditing had to be carried out by different people? Can anyone else comment on this? Mine is in the process of being done at present but volume of work would be pretty similar to what you've quoted. When I dropped all the stuff off, I asked out of curiosity how many hours of work she anticipated. Answer about 16.
If we take $2500 as average fee, that would be roughly $150 per hour which probably isn't out of the way for accountants.

I guess another factor is feeling confident your accountant and auditor are going to get everything right. After all, if there are mistakes, they are not the ones up for heavy penalties by ASIC because of non-compliance.

Julia

 

[Duckman#72]

Prospector:

You say above "because he has to audit every single transaction".
My understanding was that the accounting and auditing had to be carried out by different people? Can anyone else comment on this? Mine is in the process of being done at present but volume of work would be pretty similar to what you've quoted. When I dropped all the stuff off, I asked out of curiosity how many hours of work she anticipated. Answer about 16.
If we take $2500 as average fee, that would be roughly $150 per hour which probably isn't out of the way for accountants.

I guess another factor is feeling confident your accountant and auditor are going to get everything right. After all, if there are mistakes, they are not the ones up for heavy penalties by ASIC because of non-compliance.

Julia

You are exactly right Julia. The audit and accounting work are technically not to be undertaken by the same person however the ATO have allowed firms that are large enough to have an accounting section and audit section to establish "chinese walls" to enable everything to be done under the one roof.

It is an area that the ATO are closely reviewing. Until the ATO's involvement in policing SMSF accountants were just signing off audits as par for the course once they finished preparing the financial statements.

You get what you pay for.

I looked at the website for Nicholas Needham and note that they are "Qualified Accountants". Unfortunately the accounting profession is not as strict with the use of "Qualified" as other professions. A "Qualified Accountant" can be someone that has completed an Associate Diploma of Business from TAFE. On their website they mentioned that the cost for them to prepare and audit an average super fund was $500. I wouldn't be interested in going to a firm that employed "qualified" auditors and accountants at a charge out rate of $50 per hour (which is what this could equate to - or even less). To charge out so cheaply they need to do one of two things - the accountants must be on low charge rates or the accountants must be spending very little time on each job. Both would seem to be problematic.

Sails and Prospector made the comment that there weren't any industry standards on pricing - well that is correct. However there is a reason that the ATO and ASIC quote $1700 per annum on their respective websites - that is considered to be industry standard!

Sure you can get your personal income tax return done at say H&R Block for $65 but there is a very good chance that you will get someone that has done a 2 month bridging course only a month earlier. As I said - you pay for what you get.

Sails comment made me smile - something about "all the work had been done".

Julia is correct again in saying that you need to feel confident in your accountant and auditor. Spot on. I would be interested in knowing how many ATO audits Nicholas Needham come across as a percentage of the number of funds they prepare.

This thread is right back to the start - IMO if you can't afford to pay $1500 for the compliance work on your super fund you are not in a position to start one up.

 

[Prospector]

Thanks for your comments people. Yes, the audit and the returns are done by two different people, but the firm is big enough to have its own audit branch, at least, I am assuming that.

I have had queries about my accountants fees from doing our company returns, which last year were ridiculous. They also charge $220 per ASIC report, which is really just a print off of their data base unless something like an address changes. So while $1500 may be the go for Super Funds, we are paying almost double that. I dont mind at all paying the amount we do, providing the accountant practice doesn't see us as the golden egg! And we are talking about South Australia here, where rents and company costs are way below Sydney and Melbourne. Except our Taxes (petrol, Land tax and stamp duty) are way way higher :swear:

It is a bit of a saga but my original accountant who was great, felt unable to cope with some issues with his private life, as well as keep up to scratch with the GST. So he joined forces with a bigger group. Bad move for all concerned. He says all of his original clients are complaining about the fees, so I was curious to see what others are paying.

Next year the accountant will be going back to his own practice (well, that is the plan) and so the costs will fall drastically without all the overheads.

Cheers

 

[macca]

Just thought I would add that before moving to my $700 accountant I used to be with a retirement advisor who used to charge $1400 pa.

After they moved into a palatial office I thought "who paid for this?"

I decided I would get some comparison prices, I asked at 3 accountants and the prices ranged from $600 plus GST to $1000 plus GST, about 3 years ago.

I had a chat with the $600 guy and he showed me a sample annual return, it was EXACTLY the same as the one I paid $1400 for

I said that looks familiar, he said "Yes, there are 2 accounting software packages that are very popular in the industry, we must be using the same program"

Each year I print out a list from Commsec of my trading activities for the year, and hand over the usual bank statements etc. I usually have maybe 20- 30 trade a year.

One difference may be that I am not drawing a pension from the fund, I would think if I was taking money out then that would require a LOT more diligence on their part, $$$ !!

But if you are still paying in with no drawings I think I would be shopping around, by the way, my guy is a Chartered Accountant. He does charge $175 to press print on the word processor for the Company return, so I get that myself now and press "print" on my own PC.

 

[Prospector]

Sails and Prospector made the comment that there weren't any industry standards on pricing - well that is correct. However there is a reason that the ATO and ASIC quote $1700 per annum on their respective websites - that is considered to be industry standard!

.

Duckman, I would like to see that that info and just wave it under my Accountants eyes. Have had a quick browse on the ATO website under Super Fund but was wondering if you could let me know where it is?
Thanks if you do

 

[Duckman#72]

Just thought I would add that before moving to my $700 accountant I used to be with a retirement advisor who used to charge $1400 pa.

After they moved into a palatial office I thought "who paid for this?"

I had a chat with the $600 guy and he showed me a sample annual return, it was EXACTLY the same as the one I paid $1400 for

I said that looks familiar, he said "Yes, there are 2 accounting software packages that are very popular in the industry, we must be using the same program"

Each year I print out a list from Commsec of my trading activities for the year, and hand over the usual bank statements etc. I usually have maybe 20- 30 trade a year.

One difference may be that I am not drawing a pension from the fund, I would think if I was taking money out then that would require a LOT more diligence on their part, $$$ !!

But if you are still paying in with no drawings I think I would be shopping around, by the way, my guy is a Chartered Accountant. He does charge $175 to press print on the word processor for the Company return, so I get that myself now and press "print" on my own PC.

Hi Macca

Might I suggest you look for an accountant that is working out of a tent. His/her overhead costs would be much lower again.

When you say the annual return was EXACTLY the same as the one being prepared for you - you must mean it looked like it was in the same format. That is because regardless of the software used by tax agents, Accounting Standards require the annual returns to be reported in a structured, clearly defined and consistent manner. I hate to tell you but they will all look much the same. Is that what you are paying for - "the look" of the report? Might I recommend you also be concerned about the content.

Software is only as good as the person using it. Garbage in - garbage out. A lot of software products (such as MYOB and Quicken) are sold on the basis that you are "reducing the time of accountants and therefore fees". This is not always right - if the chart of accounts are not setup correctly, or the bank account reconciles only because of an adjusting entry, or the accounts are not reconciled at all, software programs can cause more problems than if the accountant was using the bank statements and cheque butts.

A lot of problems with fees seems to stem from what people expect their accountant to do. Try and get your accountant to present you with an Engagement Letter that spells out what their brief will be. Do you know how to calculate the correct capital gain or loss from your share transactions? Do you know what is legitimately allowable as a deduction? Can you prepare the ITR yourself? If not - let the accountant do it.

It amuses and amazes me that people boast about how good their accountant is based on the size of the fee! And it is understandable. Most people don't know as much as they think they know about tax. They only correspondence they get from their accountant is:
a) A letter outlining the funds performance and likely tax payable/refundable
b) The folder containing tax returns and financial statements
c) The bill.

Unfortunately accountants don't often spend the time they should explaining what they have done for clients, and the benefits they have created. It is an area that they need to work on. All a person sees is a pile of papers and a bill. There are those that purchase based on price and those that will be based on quality. Sometimes they go together - often they don't.

Duckman

 

[Duckman#72]

Duckman, I would like to see that that info and just wave it under my Accountants eyes. Have had a quick browse on the ATO website under Super Fund but was wondering if you could let me know where it is?
Thanks if you do

Hi Prospector

Goto the ATO website and search for Factsheet: POTENTIAL SMSF TRUSTEES. NAT 13556-05.2005

Also www.asic.gov.au/fido/fido.nsf/byheadline/Is+self+managed+super+right+for+you%

Hope this helps. Mind you it is only an industry average. Quote "SFSF can typically cost around $1700 to run each year and quite often cost more."

Duckman