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Cost of running an SMSF receives updated judgement

When the superannuation system was designed for compulsory contributions starting in 1992, nobody expected SMSFs to become so popular. Over 1.1 million Australians hold $735 billion in their own funds, as shown below in an ASFA table, running equal with the other success story, the industry funds, both well ahead of the laggards, the retail funds. An entire industry has sprung up to service the needs of trustees and members. 

Former Prime Minister, Paul Keating, wrote in Firstlinks (then Cuffelinks) in 2013:

“I never expected Self Managed Super Funds (SMSFs) to become the largest segment of super. They were almost an afterthought added to the legislation as a replacement for defined benefit schemes.”

As superannuation balances increased over the years, and especially as members headed into retirement, it became common to switch from a large institutional fund into an SMSF, much to the chagrin of the industry and retail funds as they lost clients at the point where they were the most valuable.

The SMSF move was encouraged by thousands of financial advisers and accountants who could see a steady stream of work from advising on structure and maintaining financial accounts. Over the years, specialist administrators improved the user experience and reduced the cost of running an SMSF. 

It was initially argued by service providers that an SMSF allowed the major benefit of control over investments, but there has always been a debate about cost because it was never clear what components were included.

In October 2019, when ASIC issued Information Sheet 206 to guide professionals providing advice on SMSFs, it shocked the industry by stating that it takes 100 hours and $13,900 a year to run an SMSF. It was based on Productivity Commission work (in a 722-page Report) that included Finding 2.6 which said:

“The SMSF segment has delivered broadly comparable investment performance to the APRA-regulated segment, but many smaller SMSFs (those with balances under $500 000) have delivered materially lower returns on average than larger SMSFs.”

This set the bar at $500,000 which was much higher than most service providers had suggested to their clients. Furthermore, ASIC gave this threatening instruction:

“Compliance tip: We are likely to look more closely at advice to establish an SMSF, to consider whether the advice complies with the best interests duty and related obligations, if the starting balance of the SMSF is below $500,000”.

That introduced risk for an industry previously satisfied with recommending SMSFs down to around $200,000. SMSF service providers pored over the numbers and found that less than 10% of the stated costs were attributed to administration, with the rest coming from investment management and items such as insurance. But still the debate raged.

What is included in these new numbers?

The starting point in reading any research is to know who is performing it. These latest numbers are co-presented by Rice Warner and the SMSF Association, supported by SuperConcepts, with the aim “… to educate, inform and assist existing and potential SMSF investors decide if an SMSF is a suitable and effective retirement savings vehicle for them”.

In any comparison of SMSFs with retail or industry funds, it is essential know what is included. SMSF trustees can choose to outsource some or all of the administration and investing, and this makes a major difference in how SMSF costs are judged. Put simply, an SMSF with $1 million paying a fund manager a fee of 1% looks like a $10,000 cost, but that is paying for the investing skills, not the cost of running an SMSF.

As Rice Warner advises:

“Direct investment fees have been excluded from this analysis as they are dependent on the specific asset types chosen by specific SMSFs and cannot be estimated for a generic fund for comparison purposes.”

A breakdown of the results

While the data can be cut a million ways, the new research reaches some broad findings that will please the SMSF industry, while admitting it is not possible to say one product is cheaper or better than another for a specific balance.

For example, the table below shows a range of costs for SMSFs of various balances and the colour coding indicates whether the cost is:

  • Pink - Above the range of fees for equivalent balances held in industry or retail funds
  • Grey - Within the range of fees for equivalent balances held in industry or retail funds (ie between the high and low fee for that account balance.
  • Green - below the range of fees for equivalent balances held in industry or retail funds.

Under the two headings, SMSF Compliance Admin represents SMSFs that outsource only their compliance administration to a service provider and SMSF Full Admin outsources all their administration. The table below refers to accumulation accounts.

Like other tables in the report, the broad conclusion is that SMSFs of around $200,000 to $250,000 are cost-competitive with institutional funds, and at higher balances have lower fees.

Range of annual costs ($) accumulation account

Why such a difference versus the $500,000 ASIC and the Productivity Commission findings? Looking under the hood shows the Rice Warner numbers exclude financial advice, investment management and insurance, whereas ASIC captured these.

Rice Warner summarises as follows:

“SMSFs with balances of $200,000 or more provide equivalent value to industry and retail funds at all levels of administration. SMSFs with balances of $500,000 or more are generally the cheapest alternative. The majority of SMSFs with low balances either grow to competitive size or are closed.”

If an SMSF has a simple range of investments, especially where trustees make their own decisions, it can be justified at around $200,000. Administration costs can rise for complexity, especially owning property in an SMSF, but fees are highly competitive from a wide range of service providers.

Importance of investment costs

When an industry or retail fund charges 0.75% on a balanced superannuation fund, a common price point, it covers managing the fund with investing and reporting included. There is usually an additional administrative fee of about $2 a week or $100 a year. When an SMSF costs $3,000 to administer a $1 million fund, it is not comparable to say that is cheaper because that is only 0.3%.

The SMSF could invest in cash or term deposits for nil 'cost', or in Exchange-Traded Funds for less than 0.1%, or buy a residential property with higher costs. These are investment decisions made by the trustee independent of the 'SMSF cost' argument. The SMSF is the vehicle that facilitates it.

In commenting on the study, sponsor SuperConcepts said:

"On closer examination, SMSFs may be even more affordable than other institutional options because they can avoid significant investment management charges if necessary ... few SMSFs use structured products like managed funds, we know it is only about 20% of the money that is in the SMSF space is in those sort of products.”

The ultimate answer to the question of whether the cost of an SMSF can be justified versus a retail or industry fund depends on the investment intentions of the SMSF's trustees and the amount involved. SMSFs are more suitable for large balances and active investor engagement while institutional funds provide solutions for smaller balances and less member involvement.       


Graham Hand is Managing Editor of Firstlinks. For a copy of the full Rice Warner report, go here. This article is general information and does not consider the circumstances of any person.


Greg (another one)
December 08, 2020

There are a couple of conveniently ignored factors in the “how much” argument.

As an analogy, you don’t learn to swim by staying out of the pool and, if you can’t swim, starting out in the shallow end is probably better than starting out in the deep end.

Running an SMSF is a “new” skill for most (unless you come out of a relevant financial profession) so starting out with a smaller balance and (hopefully) time ahead to develop skills and reap the benefit can only be a positive thing. Having “skin in the game” is a great way of focusing one’s attention and encouraging skill development end gaining financial self-sufficiency.

The argument that low balance and/or unpracticed players should stay put of the pool is just a self-serving argument by conflicted experts to discourage development of financial skills and self-responsibility in the general populace.

That argument reminds me of the early English Guild system with their exclusionary practices of monopolizing work in their trades for their paid up members – no membership, no right to work in that trade.

It is my SMSF – I have a say in deciding the benefits.

December 07, 2020

There are three major tasks in running an SMSF: investment decisions, bookkeeping, and knowing the legislation/filing government returns. In our fund, I invest in blue chip shares and direct property, my wife does the books and we outsource the rest to a specialist company for a small fixed fee each year.
We setup our fund 25 years ago after I became very disillusioned with my retail fund's returns which didn't come close to the performance of the All Odds index. Since then, we track the index reasonably well and are way in front (after all fees and taxes) of the industry and retail funds. It takes a bit of work and knowledge of finance and accounting, but I never regret the decision. An SMSF invested in passive index funds should outperform similarly with very little work required.

David H
December 07, 2020

I retired 20 years ago with 750,000 in a SMSF plus 350,000 in a separate personal shareholding. My wife has a separate shareholding which I don’t take into account as far as family income is concerned. After 20 years of modest living, my super fund has the same balance despite always withdrawing the statutory percentage each year and my personal account has a balance around 800,000 ( thanks to a big holding in CBA).
My accountancy costs are around 8,000/year for the three tax returns plus all the compliance requirements for the SMSF.

December 07, 2020

The costs of running an SMSF ignore the opportunity cost of the trustees` time in making decisions re investments, the cost of brokerage, etc. Furthermore, trustees may not have the skills to invest wisely .

December 07, 2020

For me the opportunity pleasure of making investment decisions and getting better returns. If you feel otherwise then you should be in an industry fund. However, for many of us this is something that we have great interest in and do not want to outsource.

Ian Nettle
December 07, 2020

The other reason I run my own SMSF is I don't pay for things like..... sponsorships of sporting teams....logos on shirts, on race cars etc etc. I also don't have to run seminars and things that come under "member education". I also don't have to do any advertising in order "attract members", put the knife into my rival be it the Industry Funds or the Retail Funds. Also don't have to run a call centre either. On a separate but related issue I wonder to myself how some of this stuff passes the "sole purpose test" as well. In the end couldn't be happier with my SMSF.

December 05, 2020


These studies largely miss the point. A SMSF costs are largely in fixed $'s whereas all Retail and Industry funds have a % based fee dependent on the size of the fund. That is a fundamental structural difference which turns into a massive SMSF cost advantage for larger funds and everyone with a SMSF gets that. Everything else, pretty much, is academic.

When considering a SMSF, young people in particular should not be put off by these studies. They need to think about the future size of their Fund rather than the start point and then understand how the cost profile will change over time as their Fund grows

December 06, 2020

Not any more Rob. An increasing number of retail funds have tiered % administration fees that decline with larger balances, and convert to a fixed $ amount for any balances above a certain threshold. They offer the choice of direct share investments for those who prefer to do their own investment management rather than pay fund manager fees. They offer account aggregation so that all members of a family can qualify for lower fees based on combined family balance. These products are quite cost competitive with SMSFs even at larger balances. And they are becoming more prevalent.

Retail super has evolved greatly in terms of flexibility, control, tax efficiency, and cost structure over the last 10 years or so since industry fund competition forced them to become more innovative. In doing so they have also leapfrogged many of the advantages which were once the preserve of SMSFs.

December 07, 2020

Ok Dean - acid test.

Just paid a $1500 bill for tax preparation, incl audit, for a $1.0m SMSF. Delighted to learn the name of any Retail or Industry Fund where their cost structure would be lower or where the crossover is

As I calculate the fee for a large well known Industry Fund, the equivalent number is $5,517 which includes Weekly Fee, Admin Fee and Investment Fee

No rocket science here - a SMSF that is truly "self managed" should be cheaper as it has zip overheads. Different game if a SMSF needs lots of outside advice

December 04, 2020

I have an SMSF with a balance circa $1.8M. I pay an online service provider around $1,000 pa to manage all compliance and provide low-cost access to online share broker. Add ATO compliance levy and audit fee and that’s it - around 0.15% pa!

December 04, 2020

"the broad conclusion is that SMSFs of around $200,000 to $250,000 are cost-competitive with institutional funds, and at higher balances have lower fees."

That's an extraordinary statistic (which sounds quite similar to extortionary).

December 04, 2020

Graham, sorry I didn't have the terminology at my fingertips. Look up "other fees and costs" and "indirect cost ratio" on the various superannuation fund fund websites. These are additional to the advertised management fee.

December 04, 2020

Thanks Graham. I am referring to buy sell spreads that the super fund is exposed on investments that they may make in various managed funds (eg wholesale pools) , not in respect to the clients entry/exit prices .

December 04, 2020

It is my understanding that brokerage, buy sell spreads and transactional costs are accounted for in industry and retail super funds separately as investment costs and and are not paid out of the admin fee charged to the client. Those costs reduce the return from the underlying investments before the net amount is brought to account. I don't think it is correct to say that the fee paid to industry and retail managers covers all aspects of managing the superannuation, including investing and reporting as stated above.

Graham Hand
December 04, 2020

Thanks, Ian. I'll do some broader checking but the large fund that I have some super with reports its fees as including transaction costs, with nil buy/sell spreads and nil switching fee: "Total investment fees and costs and transaction costs (%) Super: 0.46% | Pension: 0.38%"

There is a weekly admin fee which I have now mentioned.


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