How much do I need to start an SMSF?

By Louise Lakomy, Crystal Wealth Partners

June 16 2016
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One of the most frequent questions I get asked by new clients is how much do I need to start a Self-Managed Superannuation Fund (SMSF)? The answer isn’t straight forward as there are numerous issues to consider. On average 36,000 SMSFs are set up every financial year and as at 30 June 2015 they accounted for 29% of all superannuation monies.

As a guide, the ASIC website when talking through examples has a starting sum of approximately $200,000, but I often say to clients around $400,000 as a minimum due to the ongoing costs of running a SMSF when comparing them to other comparable options such as retail funds.

The average cost of setting up a SMSF is $700 for individual trustees and approximately $750 for setting up a company if opting for a corporate trustee. It should be noted that 78% of all SMSF’s as at 30 June 2015 had individual trustees. If gearing is involved then additional costs in the vicinity of $2,000-$5,000 can apply due to the need to set up a bare trust structure. If advice is required in relation to the setup of a SMSF and what investments to choose then there will also be a financial plan fee of approximately $2,500.

There are also ongoing costs for a SMSF however the costs depend on how the client wishes to arrange things. The essentials include fees for preparation of financial accounts, tax returns and an audit. These fees can vary considerably between administration providers and accountants. Where the trustees appoint an adviser there will also be strategic financial advice and investment fees. There may be insurance costs if a member has insurances held through the SMSF. The average cost of running a SMSF 2013/2014 financial year was $5,477 as per the ATO annual SMSF population analysis tables. The average SMSF is around $1.066 million and the average member balance is around $564,000.

However it’s not all about costs. A SMSF may still be appropriate for clients who have balances less than $400,000 if the client is able and willing to undertake much of the administration of the SMSF and the management of the investments themselves as trustee to make it more cost-effective.

Also if a client is planning on selling a business or property to transfer funds into a SMSF or is going to receive a large sum of money via an inheritance or windfall then that is also a consideration in setting up a SMSF with a smaller sum for a period of time. The client may also want to borrow to invest into a property. It may also be appropriate for lower balances where additional contributions are likely to come in to make the fund size economical.

It really comes down to evaluating each person’s circumstances and deciding on whether a SMSF is the best strategy.

At Crystal Wealth Partners we offer our clients a full service arrangement whereby we take care of all of the administration and investment management on behalf of our clients, while allowing them the flexibility of a wide range of investment solutions to meet their needs and objectives.

Louise Lakomy Crystal Wealth Partners director and Financial Ombudsman Service board director

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Retirement