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SMSF fees lower than APRA funds
The average self-managed superannuation fund (SMSF) fee is lower than the market average for all Australian Prudential Regulation Authority (APRA) regulated funds, according to Rice Warner.
In an analysis to unravel SMSF criticisms, Rice Warner said fees for SMSFs varied based on the size of the fund, the investment strategy, the amount of administration that the trustee was willing to undertake, and the level of advice that had been provided.
“Our estimate for the total fees paid by SMSFs in the 2016 financial year is 0.99 per cent of assets. This is inflated by including the estimated cost of interest margins on bank deposits as a fee whereas interest margins are excluded in calculating fees for APRA-regulated funds,” Rice Warner said.
The average SMSF fee is still lower than the market average for all APRA-regulated funds, showing that the sector has generated some scale benefits from aggregation of administration and software platforms.
On criticisms about the lack of asset diversity in SMSFs, Rice Warner said while SMSFs had a clear bias towards domestic shares and cash compared to APRA regulated funds, the estimates of Australian equities were overstated by the fact that many SMSF members utilised exchange traded funds (ETFs) or managed investment trusts to get international exposure.
“Another important consideration is that half of SMSF money is in the retirement phase. Our analysis of the asset allocation for members of APRA-regulated funds in the retirement phase suggests that they hold similar allocations to defensive investments such as cash to meet pension payments. Some of the cash held by SMSF retirees is placed in term deposits as a nest egg,” the analysis said.
Rice Warner noted that SMSFs had also collectively outperformed APRA-regulated fund since 2005, with average compound returns of eight per cent per annum and 6.2 per cent per annum respectively.
“Further, SMSFs outperformed in 8 out of 12 individual years for the period considered. The margin would be greater if fees were deducted from returns,” it said.
”Much of this performance can be attributed to asset allocation, patient long term investing and tax optimisation at the member level. Of course, past investment performance is no guide to the future.”
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