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27 Nov, 2020

SMSF WEEK: SMSFs may be even cheaper to manage than Rice Warner Report suggests

The Rice Warner report into the SMSF sector this week shattered theories that SMSFs were more expensive to run than retail and industry superannuation funds. On closer examination, SMSFs may be even more affordable than other APRA options because they by-and-large dodge significant investment management charges.

Independent financial services experts Rice Warner prepared a report for the Australian Securities and Investments Commission (ASIC) in May 2013 on the costs of operating SMSFs. Now, seven years later and as part of SMSF Week 2020, The SMSF Association has commissioned an update - sponsored by SuperConcepts - entitled Cost of Operating SMSFs 2020.

There were several key takeaways from the report, most notably that SMSFs became cost comparable to retail and industry funds at a balance of $200,000 and became a cheaper option when balances reach $500,000.

SMSF week report by Rice Warner

This table updates an ASIC fact sheet released in October 2019 which 'urged consumers to think carefully about setting up self-managed funds because it claimed they cost an average $13,900 and take 100 hours a year to run'.

A major difference between this year's Rice Warner report and the one commissioned back in 2013 is that the 2020 version includes expenses and transactional data of 100,000 SMSFs which were not available for analysis the first time around. The new report shows the cost of operating an SMSF has come down and $200,000 is the break-even point - or cheaper if a fund uses a low-service provider.

But what the report doesn’t include in the operating costs is investment management charges and there have been questions around why the table above does not make allowances for these charges.

SuperConcepts Executive Manager - SMSF Technical & Strategic Solutions Philip La Greca was part of a webinar with the SMSFA as part of SMSF Week and he said that only strengthened the case that SMSFs are cheaper when they have a balance beyond $200,000 because investment management charges are seldom an issue.

“The first thing that you've got to remember is pretty much every APRA regulated fund actually has a cost to just hold assets, they all have a custodian, to begin with,” Mr La Greca said.

“Automatically just holding an asset, irrespective of buying or selling, there is an ongoing cost. That is something that most SMSFs don't bear.

“Very few SMSFs use structured products like managed funds, we know it is only about 20 per cent of the money that is in the SMSF space is in those sort of products.”

That means that retail and industry fund fees are likely to be even higher than the Rice Warner figures in the report, for funds that incur these investment management charges that SMSFs are rarely exposed to. The telling point with the investment costs question is that acquisition, disposal and holding cost are clearly related to the asset class and the structure used to hold it.

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