A closer look at self-managed super funds

November 2018

Over the years, we’ve seen a noticeable increase in members transferring out of self-managed super funds (SMSFs) and back to us. We explore this shift in more detail.

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What’s the difference?

SMSFs are different to not-for-profit funds like UniSuper, or for-profit retail funds, such as those operated by major Australian banks, in some important ways.

In short, members of SMSFs must be a trustee (or director in some cases), and are responsible for:

  • complying with the trust deed that governs the fund,
  • developing an investment strategy, and
  • attending to all administrative tasks (among other duties).

Of course, SMSF members can outsource these functions, but they’re likely to remain responsible for the action taken.

Funds regulated by the Australian Prudential Regulation Authority (APRA), like UniSuper, have a board of trustees or a corporate trustee which are responsible for running the fund.

SMSFs can be popular with more experienced investors, especially those with larger account balances, who may have the appropriate experience and skill to invest in alternative investment strategies; or for small business owners who may be able to hold business assets in their super (subject to normal release conditions, such as retirement).

Opposition policy on franking credit refunds

SMSFs have been subject to a number of legislative changes over the years.

In March 2018, the federal opposition proposed to restrict cash refunds of excess franking credits, meaning that many SMSFs (and others) with a high allocation to Australian dividend-paying shares would lose a potentially significant income stream in the form of refunds from the ATO.

It’s anticipated that the proposed measure would mean affected SMSFs may seek to ‘rebalance’ existing portfolios, or consider other super arrangements. Due to the typically balanced nature of larger super funds’ (like UniSuper) investment options, these funds won’t typically be negatively affected by the proposed change.

Value for money?

Assessing average SMSF fees can be difficult because they typically incur higher expenses in the first year for outlays such as administration, accounting, and legal costs.

The method for determining expenses is also different to the methodologies used for APRA-regulated funds (like UniSuper), and there are also data limitations, which means that comparisons of fees between SMSFs and APRA-regulated funds can be variable.

However, 2016 figures from the ATO report that average SMSF expense ratios (‘total fee’ ratios) ranged from 14.05% for balances below $50,000 to 0.69% for balances over $2 million.

Average total expense ratio, by fund size, by year
Fund size 2012 2013 2014 2015 2016
$1 - $50k 10.17% 11.17% 12.54% 13.01% 14.05%
>$50k - $100k 4.77% 5.47% 6.14% 6.60% 7.35%
>$100k - $200k 3.44% 4.21% 5.00% 5.79% 6.41%
>$200k - $500k 1.72% 2.30% 2.63% 2.98% 3.26%
>$500k - $1m 0.85% 1.30% 1.39% 1.48% 1.58%
>$1m - $2m 0.50% 0.89% 0.93% 0.98% 1.06%
>$2m 0.28% 0.63% 0.65% 0.65% 0.69%

Source: ATO Self-Managed Superannuation Funds: A Statistical Overview 2015-16

ASIC has offered a general ‘rule of thumb’ for SMSF investors: “The costs of establishing and operating an SMSF with a balance of $200,000 or below are unlikely to be competitive, compared to a fund regulated by the APRA.”

Investment performance

Like fees, comparing the investment performance of SMSFs with industry and retail funds can be fraught; different balances, asset classes and strategies can vary the average performance rate of the SMSF sector as a whole, as can the different methodologies for measuring performance and data limitations.

However, the same ATO report revealed that for 2016, SMSF returns ranged from -16.70% to 4.27%.

Average return on asset, by fund size, by year
Fund size 2012 2013 2014 2015 2016
$1 - $50k -18.73% -17.28% -12.51% -17.38% -16.70%
>$50k - $100k -9.93% -5.17% -2.78% -6.84% -7.28%
>$100k - $200k -5.90% 0.83% 1.55% -1.02% -3.28%
>$200k - $500k -2.52% 6.36% 5.88% 2.45% -0.02%
>$500k - $1m -0.41% 9.31% 8.33% 4.60% 1.37%
>$1m - $2m 0.67% 10.64% 9.59% 5.70% 2.15%
>$2m 1.49% 11.59% 11.29% 7.52% 4.27%

Source: ATO Self-Managed Superannuation Funds: A Statistical Overview 2015-16

Apples with apples

We’ve only considered a few of the important factors to assess when determining whether a SMSF may suit you. Like all important financial decisions, you should consider seeking advice from a qualified financial adviser.

You can compare us against other funds in terms of fees, investments and more by visiting Chant West’s Super AppleCheck tool.