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.
Frequently Asked Questions about this Article…
How easy is it to change my SMSF administrator or accountant?
Changing an SMSF administrator or accountant is generally straightforward. A competent SMSF service provider or accountant can take over administration once you provide the previous year’s accounts and statements. The process is mainly an exchange of records — you don’t need to stay with a provider out of confusion or habit.
What different SMSF fee structures should I expect to see?
SMSF administrators commonly use a fee-for-service model (based on the work required), a percentage fee based on SMSF value, or a two-tiered approach where fees depend on whether you receive investment advice and purchase investments through the provider.
What are the main factors that influence SMSF administration fees?
Administration fees are driven by the amount of accounting and administration work needed plus the audit fee. Key factors increasing work (and fees) include the number of members, the number of investments, whether the fund has members in both accumulation and pension phases, and the number of investment/financial transactions each year.
What is a reasonable range for SMSF administration fees (including audit)?
As a rough rule of thumb, a professional SMSF service provider should charge around $1,500 to $2,000 for a relatively simple fund (including the audit) and roughly $2,500 to $5,000 for a more complicated fund.
Are very cheap SMSF administrators a good choice for everyday investors?
Be careful: very inexpensive administrators often impose conditions or restrictions on what the fund can invest in. Those restrictions let administrators limit their work, but they reduce the flexibility that an SMSF is supposed to provide, so low cost can come at the expense of investment choice.
How does a two-tiered SMSF charging approach work?
In a two-tiered model the fee depends on whether trustees accept investment advice and buy investments through the administrator. Trustees who rely on the provider for advice and purchases often pay a lower administration fee than those who want a hands-on approach and source investments independently.
If my administrator doesn’t provide tax or super strategy advice, how should fees be calculated?
If no tax or super strategy advice is provided, fees should reflect only the accounting and administration work required plus the audit fee — not advisory service charges. In other words, charges should be tied to the actual admin workload.
Will switching SMSF administrators affect the fund’s audit or cause problems with accounts?
Switching administrators often changes the fund’s auditor. Because auditors can apply strict standards, the new auditor may qualify the first year’s accounts on the basis that the previous year’s figures weren’t audited by them. That qualification relates only to prior-year figures and should not prevent trustees from changing providers.
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