Anything and Everything about Superannuation

Discussion in 'Superannuation, SMSF & Personal Insurance' started by trinity168, 15th Feb, 2017.

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  1. Redwing

    Redwing Well-Known Member

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  2. SatayKing

    SatayKing Well-Known Member

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    Sir Bertrand Russell and co-authors, by use of symbolic logic, proved that 1 + 1 = 2 but even they would be struggling to understand the arcane concepts of the numbers involved in the accounts of an SMSF.

    I gave up, assumed they were in the right place and correct, signed the relevant documents and handed them back to that witches cauldron known as an accounting firm.

    Now it is a matter of:

    [​IMG]
     
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  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Thats a concern. I would be asking for 10minutes of the accountants time to ask for them to explain the process and what it all means. If they are any good they should be able to explain the basis and what all the number mean. Many accountants think their job is to be #1 in numbers (Sorry CAs). No its to be #1 in words. They need to ensure they can explain numbery things to clients. If they cant do that they have failed. I would not want a client to sign something they didnt understand.

    I have been considering a PAS TV video series on how to understand reporting, accounting and tax returns for various entities in real plain english and you have spurred me to get this done soon.
     
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  4. SatayKing

    SatayKing Well-Known Member

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    Not really @Paul@PFI. It's probably more of a matter of me becoming disenchanted with operating an SMSF. Took a way more active interest in years gone by but as I age it's becoming more of a chore.

    The accountant did go through the matters but my brain froze over to a large degree. So much so I have wondered whether it's getting even closer to the time I move it to an industry fund. Still wrestling with that. It's all in accumulation now and I am having issues of engaging with the darn thing.
     
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  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Then I would have the discussion I had with the trustee Director of a large fund client. Single older person without dependants or surviving spouse. We encouraged the member to roll out all investments to a public fund. It offers far greater range of benefits as the member seeks to travel and retire and not think of super. The fund selected by the member still offers a good range of personal choice while the members requires it. And on death avoids a load of nasty issues. The members solicitor agreed. We lost a client but its a sign of good advice to set the client interests first at all times.

    That type of discussion should consider legal issues (solicitor) and financial / tax issues
     
  6. Redwing

    Redwing Well-Known Member

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    Got an SMSF worth less than $500k? Think again, ASIC says

    "It you're balance is less than $500,000 then on average your returns are lower than they would have been in an APRA-regulated fund," Ms Press said.

    "If your balance is small and it's not growing, then we would ask the question is an SMSF right for you?"

    AustralianSuper chief executive Ian Silk earlier this year said an "optimally functioning" super system could only be achieved if there was a review of SMSF performance and regulation.

    In its draft report, the Productivity Commission named $1 million as the point at which self-managed funds tended to be broadly competitive with industry and retail funds.
     
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  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    LOL. They may also be aware that industry fund returns have fallen substantially making some smsf strategies even more viable and competitive. There is more to a smsf than a earning rate comparison at any point in time. Choice and control are primary drivers.

    I agree with the "not growing approach".....Some smsfs arent viable and do no more than hold a single asset class that doesnt perform.

    SMSF laws dont contain any requirements for a smsf to outperform or match other funds of to be "productively competitive". For example a smsf may own a factory used by a small business. There is no equivalent for any other type of superannaution fund either although recent proposals are calling for underperforming "MySuper"default options to be reduced.

    If we bought in such measures AMP and some other funds might be wound up
     
  8. Redwing

    Redwing Well-Known Member

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  9. Scott No Mates

    Scott No Mates Well-Known Member

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    @Redwing - knowing that it'll cost $14k before you get out of the blocks, you have to consider why anyone would invest in residential property or have a small amount before starting a SMSF.
     
  10. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    An AVERAGE cost of $13,900 pa seems extraordinarily high and may contain costs such as adviser and wrap product fees if some SMSFs elect to use managed options where an adviser is paid or there are platform costs. I do question this data and the misleading basis of including investment products costs as an SMSF operational cost. Its like arguing council rates on a property are a SMSF operating cost.

    The member OPTION to pay an adviser and to use a wrap or other platform can be avoided by a SMSF. Quite easily too. And given that the same publication discussed hours of time spent by a trustee I would argue you cant count both. A fund with a 100% adviser managing the fund may take very little time. A fund extensively managed by the trustee members may take a larger amount of time and avoid many costs in their entirety.

    Typical SMSF operating costs include:
    - SMSF levy $259
    - ASIC Trustee fee $59
    - Bank charges $120 (perhaps. Plenty of nil fee options exist)
    - Accounting, Tax and Audit - Varies but $1500 to $5000 would address a large proportion of funds.
    - Actuarial Cert $99....One of the hidden costs of a actuarial cert is old fashioned smsf accounting. Old accountant style financial reporting software can add HUNDREDS of extra dollars to complete the actuarial certificate process. Modern software will do this on the fly.

    Setup costs and winding up costs arent costs incurred annually to operate a smsf. Its like including the cost of a brand new car in the annual operating cost of a car. And surely nobody would include BOTH in the same year ?

    The published value of $13,900 doesnt even have a source !! Just invented perhaps ??
    It doesnt share any correlation with the Rice Warner SMSF report - Commissioned by ASIC in 2013 which provides a far greater explanation on a range of factors that influence costs. Read page 18+
    http://download.asic.gov.au/media/1336058/cp216-RiceWarner-cost-of-operating-smsfs.pdf
     
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  11. Redwing

    Redwing Well-Known Member

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  12. Patrico1966

    Patrico1966 Well-Known Member

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    Anyone paying $14k as a yearly running cost for their SMSF is getting ripped off.
     
  13. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Or may disregard advice. Or may have a reason that is beyond the adviser control.
    I have seen family groups with multiple SMSFs, related trusts and very complex advice and issues involving legal advice as well as tax and financial advice. Without understanding why someone is being charged $14K its hard to determine the value.
     
  14. Ross Forrester

    Ross Forrester Well-Known Member

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    We have a lot of clients paying more than this amount.

    Many big SMSF's have a complex range of private investments and private mortgages. The management of these interests is complicated and many investments are connected but not necessarily associated.

    If you had a SMSF investing only in ASX shares and managed funds you would likely think that is high.
     
  15. Patrico1966

    Patrico1966 Well-Known Member

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    Yes, the "ordinary" SMSF would/should be well below that. It was reported the 'average cost" by the way which is still hard to believe. Any reporting of fees should separate out the mums and dads and the big SMSF's you are talking about because the average gets skewed.
     
  16. Ross Forrester

    Ross Forrester Well-Known Member

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    I would have thought that $14k include investment advisor's costs. Most investment advisors charge a fixed fee now but there are still some guys taking a percentage of FUM you could easily crack $14k.

    I have had some normal SMSF's on death with beneficiaries fighting. That can cost a fortune as well.

    It is amazing the number of SMSF's that have not considered succession planning properly - just a BDBN and they think that is it. Absolute mess when you meet a beneficiary for the first time after mum and dad have died.
     
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  17. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    That statistic will include all SMSF administration costs eg adviser fees, legal advice, fin advice, accounting, audit, tax, actuarial cert and even bank charges.
     
  18. Francesco

    Francesco Well-Known Member

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    Some interesting data from finders.com to gauge operating expenses of a smsf:

    In December 2016, the ATO released its SMSFs: A statistical overview: 2014–15 report. The report revealed that the average total annual expense ratio of Australian SMSFs is 1.10%. With the average SMSF balance at $1.12 million, that’s an average annual cost of $12,200.

    The table below, produced from ATO data, shows how SMSF expense ratios have changed over the past five years. The rise in expenses in 2013 reflects the fact that the ATO began including in its calculations the expenses that SMSFs in the pension phase are unable to claim as tax deductions.

    2011 2012 2013 2014 2015
    Administration and operating expense ratio
    0.32%
    0.32%
    0.51%
    0.52%
    0.50%
    Investment expense ratio
    0.31%
    0.35%
    0.55%
    0.58%
    0.60%
    Total expense ratio
    0.63%
    0.67%
    1.06%
    1.10%
    1.10%
    The report also revealed a few other interesting statistics:

    • 45.7% of SMSFs have an estimated total expense ratio of 1% or less
    • 59.7% of SMSFs have an estimated total expense ratio of 1.5% or less
    • SMSFs in the accumulation phase had estimated annual operating expenses of $11,700 while SMSFs in the pension phase had annual operating expenses of $12,600
     
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  19. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    4 year old data. From the ATO. The market has vastly matured in that period. And faced ever increased competition from industry and public offer funds. Some of their products are quite expensive v a direct smsf for the choice element.
     
  20. Ted Varrick

    Ted Varrick Well-Known Member

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    Absolutely right, and anybody who has their SMSF and/or managed super paying a percentage of assets, or excessive numerous and/or miscellaneous fees, needs to re-evaluate their situation straight away.

    It would be extremely upsetting, even to the most seasoned cynics, if they were the victims of behaviour such as this:-

    AMP slammed for milking fees from customer compensation

    If you were a shareholder, and, as an owner, your complaints to the board and management did not elicit heads rolling, then your investment may be headed in One Direction, and to paraphrase Rebel Wilson, it won't be north.