The real costs of starting and managing your own super fund

Managing your own superannuation fund should only take you about an hour a month says financial expert Noel Whittaker.

When starting or switching to a self-managed superannuation fund (SMSF), there are quite a few factors for trustees – which is what you effectively become, of your own fund – to consider.

Key among these factors is the cost.  

The three major costs associated with funding an SMSF are setting up the structure, the ongoing administration of the fund, and the management of the investment portfolio.  If you decide to also get independent financial advice on the process or ongoing management, that’s another cost to consider when embarking on an SMSF.

AMP financial planner Mark Borg says the cost of setting up your fund include: 

  • Costs for preparing the fund’s trust deed;
  • The cost to setting up a company, if the fund is using a corporate trustee structure and; 
  • the cost of registering the fund.
Ad. Article continues below.

While it is possible to set up an SMSF for as little as $1,000, Borg says having a corporate trustee could add another $1,000.

Despite a corporate trustee being more costly to establish and maintain, having one generally reduces some of the hassle typically associated with an SMSF according to AMP SMSF Solutions advice.  

“There are many operators in the market, but care should be taken with cut-price options available,” Borg warns. “In particular with lower-cost operators, it’s essential to ensure the trust deed is compliant.”

Set-up costs are usually a one-off occurrence but it’s the ongoing costs that you should keep an eagle-eye on, as these costs will potentially diminish your returns over time. Fees related to compliance, general administration and examination of the fund are considered ongoing fees. 

Borg says an SMSF typically costs about $1,800 a year to run.

Ad. Article continues below.

“Running costs can range from the very minimal, which is less than $500, to more than $6,000,” Borg says.

That high price tag pays for services such as record keeping, trust deed maintenance and ongoing advice, particularly around regulatory changes. 

Borg warns to take care to understand exactly what you’re paying for because many fund administrators will bundle costs of ongoing services such as general administration and compliance.

“When services are wrapped together, care should be taken to make sure you understand just what is included,” he says. “Also pay attention when administration is outsourced to ensure that records and data continue to be kept securely.”

While there are many steps you can take to keep costs low without compromising the quality of the way your SMSF is run, Borg says poor record keeping is the biggest mistake he sees trustees make which can cause major cost blow-outs. 

Ad. Article continues below.

“This requires the administrators to conduct substantial research to understand just what has gone on, which takes time and costs money,” he says of the pain of finding out why costs exploded.

“Keeping your fund’s records clean and working with an administration firm that can access your electronic records will minimise the need to conduct research to keep your records up-to-date,” he adds.

Borg recommends making sure your SMSF records and transactions can be electronically accessed, because this can keep costs down.

Veteran finance expert Noel Whitaker says managing an SMSF investment portfolio shouldn’t take more than an hour a month.

“But my strong recommendation is that you use an administration company who do all the paperwork for you – there are heavy penalties for getting it wrong,” Whitaker says. 

As for where to invest your SMSF, Whitaker says to steer clear from using it to buy property. 

Ad. Article continues below.

“The way to maker profits in property is to gear it in the name of the highest income earner to take the tax benefits sooner rather than later,” he advises. “The self-managed fund should not be for property unless it is your own business.”

He does also caution that an interest in investment is a must for trustees who intend to manage their own portfolio.

“I think a self-managed fund is great for a DIY investor who is capable, [as] it gives an investor the ability to invest in assets that a retail or industry fund cannot offer,” Whitaker says.

Do you have an SMSF? Have you considered starting one? 

Important information: The information provided on this website is of a general nature and for information purposes only. It does not take into account your objectives, financial situation or needs. It is not financial product advice and must not be relied upon as such. Before making any financial decision you should determine whether the information is appropriate in terms of your particular circumstances and seek advice from an independent licensed financial services professional.