They say information is power. Trustees of self-managed super funds are finding that information about what other self-managed super funds are doing, and what they are paying for advice, is empowering.
There is a growing realisation that trustees do not have to put up with service that is sub-standard and fees that are exorbitant.
Q I would like your opinion on the annual fees we pay for our SMSF and what level of fund support and portfolio performance we should expect? We pay a financial consultant for advice and SMSF reporting 1.244 per cent of the value of our SMSF. In addition we pay an accountant $1750 for tax reporting. The total value of our SMSF investments is $750,000.
A Philosophically, I am against SMSF fees being charged as a percentage of the value of a fund. This makes the fee more like a commission and often the increased fee paid, as the value of the fund increases, has no relationship to the level or quality of the service being provided.
The fee being charged by your consultant appears excessive, but this will depend on what level of service you are getting.
A good method of judging whether you are being overcharged is by converting the fee you are paying to hours worked. I estimate you will be paying your financial consultant $9330. At an hourly rate of $200, this means your consultant should be working about 46 hours a year on your behalf.
For this level of fee you should be having quarterly reviews with your consultant and should be getting regular advice on not only investment products but strategy advice on such things as asset allocation and tax planning. The fee charged for the tax work appears to be reasonable as, given the level of compliance placed on SMSFs, the lowest fee charged for this work is about $1500.
Q I have been paying an accounting/investment firm to manage my SMSF.
I have recently learnt that they have been charging a top rate of almost $9000 a year. I also found that they offer an economy management product at a little more than $5000 that they never told me about.
The only difference between the two products is the premier product offers quarterly reports and a review, if needed, quarterly. Is what they have done for five years ethical business practice? I am upset that they never alerted me to their other product, which would have saved me a fortune.
A Unfortunately the old legal maxim of "let the buyer beware" applies in this situation. You would have a hard time reporting this firm to its professional organisation for ethical breaches. These organisations tend not to discipline members for maximising profits at clients' expense.
Applying an hourly rate of $200, it would appear you did not get 45 hours of service or advice for the past three years. I also doubt that now you are on the once-a-year economy service you will be getting 25 hours of service or advice. Your choice is to stay with the firm or find one that gives a good level of service at a more reasonable price.
Q Is it a conflict of interest when an accounting firm audits an SMSF where a principal of the firm gives investment advice to the SMSF?
A There would be a conflict if the principal giving investment advice also did the audit. If a different principal did the audit, there should not be any conflict of interest.
Questions can be emailed to max@taxbiz.com.au
Self Managed Superannuation Funds, A survival Guide, by Max Newnham, is available in bookstores.
