Tightening up the nuts and bolts of your super structure
Illustration: Karl Hilzinger.
ACCOUNTANTS and SMSF administrators share a privileged, and often undeserved, place in the financial community. Because taxation, financial, and superannuation matters are so complex, people often believe that it is extremely hard to change their accountant or SMSF administrator.
Nothing could be further from the truth. The confusion in SMSF trustees' minds is not helped by the different methods used to charge for administration services. These can range from a straight fee-for-service model based on the work required to those that charge a percentage fee based on the value of the SMSF.
In some cases service providers to SMSFs can have a two-tiered approach to charging. The fee charged will depend on whether the trustees are receiving investment advice and purchasing investments through the service provider.
Trustees prepared to limit their advice to just their service provider end up paying a lesser administration fee than those who do not want that advice and want to take a more hands-on approach to selecting and purchasing investments.
To be able to unravel what can often be a problem for SMSF trustees it is important to understand what the key factors are that influence the administration fees charged.
Unless the administration service is providing tax and superannuation strategy advice, the fee charged should be influenced only by the amount of accounting and administration work required, plus the audit fee. The factors that will increase the amount of work required, and therefore the fee charged include:
■ The number of members.
■ The number of investments.
■ Whether the fund has members in both accumulation and pension phase.
■ The number of investment and financial transactions in a year.
This effectively means that where you have an SMSF with only two members both in accumulation phase and mainly managed investments, they should not be paying less in fees than a fund with four members, both in accumulation and pension phase, with many direct share investments regularly traded.
There are some administration service providers that provide these services extremely inexpensively. This often comes at the cost of conditions and restrictions on what the super fund can invest in. By having these restrictions, the administrators are able to limit their work but, given that an SMSF is supposed to provide maximum flexibility for its members when it comes to investing, it does not make much sense to use this type of administrator.
As a rough rule of thumb, a reasonable fee, including the cost of an audit, charged by a professional SMSF service provider should range from $1500 to $2000 for a relatively simple fund, and between $2500 and $5000 for a complicated one.
If you believe you are being charged too much by the administrator of your SMSF, or are not receiving advice or guidance that would make it worthwhile staying with them, changing to a new provider is as simple as finding a replacement.
Any accountant that specialises in SMSFs, or a competent SMSF service provider, once provided with the previous year's accounts and statements, will have little difficulty in taking over the administration responsibilities.
The only downside of changing an SMSF administrator is that this often will lead to a change in the auditor of the fund.
Due to the overzealous application of auditing standards to SMSFs, which would require a new auditor to fully audit the previous year's already audited accounts, the first year's accounts for the new administrator will be qualified. The qualification relates only to the previous year's figures not being audited and should not stop any trustees changing their provider.