I’m currently 31, and I started working full-time nine years ago. Prior to that, I was working in retail jobs part-time while I was at university with default insurances eating away at relatively small contributions. Since joining the full-time workforce, I’ve salary sacrificed each year since graduation to build my super balance to $156,000.

That $156,000 sits in an industry super fund that has comparatively low fees and the ability to customise my exposure to each asset class. I’ve chosen to go with this option as it’s much cheaper than the pre-mixed options that AustralianSuper offers and I’m able to increase my exposure to aggressive assets comparative to the pre-mixed options. My colleague Mark LaMonica has written on the fees attached to pre-mixed options and the detrimental impact that it can have on investor outcomes over the long-term.

Both the low fees and customisation are also why SMSFs are attractive to investors. They allow almost unlimited investment choice, including direct equities, funds, ETFs, antique cars, fine wines and even Swiss Chalets. An SMSF is as customisable as anything in superannuation world. Most of the fees, excluding on the underlying assets, are flat fees. Depending on the balance, an SMSF may be the lowest cost option.

And it is this part of the equation that doesn’t add up at the moment for me. My balance isn’t enough to justify the flat fees inherent with a SMSF. A percentage-based fee model works best for my relatively small balance.

Last year, I paid 0.4% (total cost) for my super to be managed. $990 is 0.6% of my account balance, and that does not include the investment fees or transaction costs that I would incur in my superannuation fund.

This is inline with what all of the industry practitioners are saying – the larger the balance, the softer the blow of the flat fee costs. Stake is a low-cost SMSF administrator, and their lowest service package is $990 per year. On a $500,000 balance, $990 is 0.2% of the balance. If I had a full service SMSF with Stake (which includes the ability to include property and funds) it would be 0.5%. As the fee burden can be shared amongst multiple members with an SMSF, the effective cost per person can be halved, or even quartered.

Investor motivations are important. Stake conducted a survey amongst their users, and the top reason for opening an SMSF was to gain more control over investments. Many investors are happy to pay a premium to be able to access this level of customisation and control.

For me, there are multiple factors that would have to change for me to make the switch. Outside of super, I am mostly in broad index funds. I am happy with the investment options that I have access to, so access to additional asset classes or investment options are not a worry for me. The cost of an SMSF would need to not just meet the cost of an industry fund, but it would need to be significantly lower. This is because SMSFs are not independent creatures that can be left to graze. They need constant monitoring, maintenance, administration, and trustees need to be kept up to date with market and regulatory changes. It is estimated that trustees spend 100 hours a year on maintaining and administering their SMSF. 100 hours a year is nothing to blink at. I like not having to think about my super. I’d pay a reasonable premium to continue enjoying that.

However, one of the drawcards for SMSFs is that it adds value as you approach retirement. During this transition, the flexibility and control over investments is valuable for investors that want to take a more active role in managing their portfolio. It’s also useful in retirement to design a portfolio to achieve growth and support withdrawals.

Morningstar's Director of Personal Finance, Christine Benz, has written multiple articles about bucket strategies supporting retirees, as linked below. The basic premise is that they can commit to long-term holding periods for some assets to give growth and income, while holding cash to support near-term withdrawals. One of the core tenets of my investment strategy is to focus on aspects within my control to maximise my total return. Not having to sell growth assets at inopportune times to fund withdrawals means making retirement savings last for longer.

SMSFs allow complete control to do this, whilst also allowing the choice to directly own unlisted assets such as residential property, a wider range of funds, bonds and alternatives.
This might be a strong enough reason to jump on the bandwagon at the right time.

Calculate your own costs: Free calculator

Are you looking to open an SMSF? Although fees are not the only consideration, they are a big one. We’ve created a calculator that allows you to compare the costs between an SMSF, industry superfund and retail superfund. Follow the steps below to find out the fee comparison between the three types of super vehicles.

1. Download the spreadsheet here.

2. Enter your superannuation balance in the green cell under ‘superannuation balance’.

3. All green cells can be modified to be more relevant to your circumstances. If you have the fee breakdown of a specific fund you are considering, you can enter that. If you have the specific fees for SMSF establishment and maintenance, you can alter the default numbers in the spreadsheet.

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