How to set up your SMSF without professional help

By
First published 5/8/2013

If you listen to one of the growing number of companies that provide self managed super fund (SMSF) services, you will no doubt hear that it’s near impossible to run a DIY super fund at full compliance without at least some level of support from lawyers, accountants, actuaries and financial planners.

 

These service providers differ in the level of support they offer and for what price. Some give you the start-up documents, set up your accounts and then send you on your way; while others hold your hand like it’s the first day of school and give you the reassurance and ongoing support you need. As the SMSF market continues to grow, more service providers are entering the fray, enabling you to engage as much or as little help as you choose in running your SMSF.

 

“You have to decide the level of service needed and what provider, if any, suits you,” says Kris Kitto, general manager, Superfund Partners. “There is a lot more competition in the market, so it’s basically a case of you get what you pay for.”

 

If you are a confident investor who understands ATO lingo and has the time to manage a strict, complicated and ever-changing set of administrative obligations, you will be able to get by with a minor level of assistance. However, if you are time poor, have any doubts about your investing know-how and find it hard to follow the ATO website, you may need someone with professional experience in your corner.

 

Establishment savings

When starting out, you can either engage a company to take care of the whole SMSF set-up, or you can save some money and complete most of the process yourself. All the information you need to do this can be found on the ATO website: ato.gov.au/superfunds.

 

Setting up costs

Requirement DIY cost Professional help cost
Trust deed- All SMSFs are trusts, so you need to obtain a trust deed, which sets out the rules for establishing and operating your fund. Once you choose whether the trust will have an individual or corporate structure, you appoint the trustees and detail their powers and responsibilities in the trust deed. This is a legal document, so must be drafted up by a qualified professional. A corporate trustee attracts extra costs, as you are required to pay ASIC fees of $433 and have a professional help you with the company’s constitution.

$110-$150 – Individual trustee

 

$110-$150 – Individual trustee 

$700-$1,200 – Corporate trustee 

 

$700-$1,200 – Corporate trustee

Trustee declarations- Each trustee of the SMSF must provide a declaration to the ATO to show they understand their obligations, roles and responsibilities as members of the fund. These can be submitted without professional help. $0 Lodged directly to ATO $100-$150
ATO/ABN registration- The next step is to register your SMSF with the Australian Tax Office and obtain an ABN for it. You can do this for free through the ATO website. Otherwise, it is offered as a service by SMSF providers. $0 Lodged directly to ATO $100-$150
New bank account- You need to open a brand new bank account so the finances of the SMSF are kept separate to your non-super finances. Contributions and rollovers are deposited into this account and then invested according to the fund’s investment strategy.

 
$0-$120 a year- Depending on bank’s individual fees $0-$120 a year- Depending on bank’s individual fees
Investment strategy- Your fund must have an investment strategy prepared in writing before investment begins. Financial planners can assist with these documents, which show that investment decisions will be compliant with super laws. Alternatively, you can do it yourself.

 
$0 Lodged directly to ATO $50-$250
DIY Saving $250-$500 $250-$500


The verdict: Go DIY
As you can see, the trust deed is the only one of the mandatory documents that requires professional help. Taking care of the rest of the fund establishment yourself can save you between $250 and $500. While you might not be comfortable overseeing the ongoing compliance of the fund by yourself, you can certainly save hundreds of dollars at the establishment phase. 



SMSFs pay extra for life insurance
One of the advantages of being in a retail or industry super fund is that you can access life insurance, income protection and disability insurance at a cheaper, wholesale rate. 

If you want to sever all ties with your original super fund and take out the insurance separately, you can expect to pay between $500 and $5,000 a year extra, depending on your age and medical history.

However, some insurance providers are beginning to identify a gap in the market.

 

“There are group or wholesale policies now becoming available, specifically for SMSFs,” says Kitto.

“They are similar to the advertised ones you see on TV, but with better features.”

 

These group insurance products are not common yet and have not been taken up by the major insurers, according to Kitto. Companies currently issuing SMSF group life insurance include Australian Group Insurance and Paradigm Wealth Management Group.

 

Ongoing costs

Once your SMSF is established, you have certain annual obligations to ensure you remain compliant. Every year you must maintain financial records, make sure investments comply with superannuation law and have a financial statement and audit prepared each year. 

 

Again, you can save money by doing most of the compliance yourself; however, the ATO has been known to make as many as 185 funds non-compliant in a single financial year, with those SMSFs losing their tax concessions. Such a penalty would be a very costly outcome for your fund, so it is necessary to consider your own capabilities when deciding how much of the work you can take on.

Annual costs

Requirement DIY cost Professional help cost
Annual audit - The audit must be carried out by an approved auditor, usually an actuary.

 
$450-650 $450-650
ATO levy - In addition to the annual audit, your fund will have to pay an ATO levy, which is currently at $200 and has regularly increased over recent years.

 
$200 $200
Overall investment and compliance - With minimum help, you can manage your SMSF for less than $1,000 a year, depending on what investments you make, what fees are involved and so on. The more help you engage and the more comprehensive the service levels, the more money you will pay.

 
$650-$1,200 $1,500-$3,500


The verdict: Get some help…unless you’re an expert
You may be able to manage the compliance of your SMSF for less than $1,000 a year, but as competition heats up between service providers, yearly fees are coming down and, for some investors, seeking help may be worthwhile.

“The gap is definitely shrinking,” says Kitto. “A few years ago, it might have been easier for someone to buy a software package and just do it and save themselves a significant amount. Now, that cost difference will be a lot smaller. They might be able to save the same amount of time and money using a supplier that really suits them.”

Mid-range service providers that have no ties to specific financial investment products can be engaged for as little as $1,500-$1,700 per annum, depending on individual terms and conditions.


Discount service providers
At the cheapest end of the market, companies like E-Superfund, Discount DIY Super, iCareSuper, My SMSF Property and Superannuation Warehouse offer free establishment of funds and low annual administration costs, but with strings attached.

For example, Superannuation Warehouse charges a $39 monthly flat fee for administration, provided that funds use Bell Direct as a stockbroker and UBank for cash accounts. Meanwhile, an E-Superfund SMSF pays $699 a year in admin fees, as long as CommSec is engaged as the broker, ANZ V2 Plus is the bank account, and property loans go through St George (residential) or Westpac (commercial) only.

 

“You pay a lower cost, so you get fewer options,” says Kitto. “These [online discount] funds are doing a great job at that end of the market. They give people an entry point, which is good but not for everyone.”

Many discount SMSF clients don’t realise that they are making up the costs in other ways.
 

“If you’re trading shares and making 50 or 100 trades a year, paying $20 per transaction instead of $15, you might be paying an extra $250-500 a year in share trading, which makes up for the lower yearly administration fee,” Kitto says.
 

Kitto’s own company Superfund Partners charges around $1,700 a year for administration, depending on the investment types used, but is commission-free and not bound by certain lenders or trading platforms
 

“It’s not just about the costs, but also the service,” Kitto says. “If you’re paying the lower costs, there won’t be as much service, which is fine because you may not want it or need it. If you want proactive service, you may need to pay a bit extra.”

 

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