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Setting up SMSF Self Managed Superannuation Fund

Decision to set up a SMSF

The decision to establish a Self Managed Superannuation Fund (SMSF) is not easy. This decision requires considerable aforethought but any delay in setting up SMSF allows money in superannuation to build up to a level where the maintenance and set up SMSF costs are effective and sustainable. As a result there is no need to rush your decision.  The second consideration is to be mindful to ensure that the “Self” in SMSF is attainable as, without members attending to the administration themselves, the costs would probably be prohibitive. Were one to require professional advisers to establish and maintain the fund then a SMSF may not be appropriate as it may not remain const effective.  As a result there had been considerable planning and thought about these matters ahead of time.

Costs of Setting up SMSF

As my funds within superannuation amounted to just over $250,000, then on an annual basis, the administration costs were amounting to at least $5,900 per annum. What were the the steps in establishing the fund and what were the costs and process.

The ease with which one is able to establish the fund is remarkable. Online there are many service providers but  cleardocs.com was chosen for a suite of Superannuation (SMSF) documents. Their website included an interface to ASIC to register a corporate trustee as this option was chosen in our circumstances. This choice of a corporate trustee is the subject of a separate post. The cost for the founding legal documents of the Superannuation Trust and Company structure was $397 with a further $469 for ASIC’s fee for the registration of the corporate trustee.

Steps setting up SMSF

The cleardocs website calls for:

  • the names of the members of the fund,
  • the trustee company name, addresses, and
  • directors

once provided the Superannuation Trust Documentation Package, consisting of all  legal documents and pre-prepared correspondence is provided.  With the clear guidance online, the detail is easily completed and within minutes the documentation for structure is provided with confirmation of registration of the trustee company instantaneous.

In addition, a Superannuation Fund Establishment Kit is provided. This is very useful and clearly written, setting out all the steps for the proper completion and signing of the documents, and detailing other obligations.

Having received notification of establishment of the corporate trustee then once the trust documents were signed our SMSF was established.  As a result of electronic messaging between ASIC and the Australian Tax Office the fund was also registered with the ATO. This process was simple, very comprehensive and easy navigate and was cost effective.

Next Steps:

Recommended Reading:

Common Stocks and Uncommon Profits

Why choose a SMSF as a saving option

Investing is regarded as complex and confusing right? That’s why you need a financial adviser to help you, isn’t it?

Man Shadow illustrating that costs cast a long shadow

That is true, but the costs of using a financial adviser or even a regular superannuation fund can often erode the investment returns and these costs are often hidden.

Self-managed superannuation fund

While it is probably better to be self-reliant, applying yourself properly to identifying and evaluating investments, takes time and is highly unlikely to result in above average results over the long run.

It’s also risky to not evaluate investments appropriately and act outside your circle of competence.

In Australia however, we have a unique situation that allows hundreds of thousand of small superannuation funds to be managed by their beneficiaries who act as trustees.

In Common Sense on Mutual Funds, John C. Bogle highlights that:

  • although we hear of the benefits of compounding returns we are seldom told about compounding costs or factor this into our long-term plans,
  • very few fund managers achieve market beating returns, especially over the long run, yet they are rewarded with a significant proportion of investment returns,
  • costs do matter and simplicity is the best way to avoid costs

I have realised that for those with the time, skills and discipline there is the opportunity to have more self direction and control over their retirement funds.  On the other hand, those that rely on outside help, will have to pay advisers which will bring them little benefit and cost them dearly in terms of returns on their investment.

The message is clear.  By setting up a SMSF you have the opportunity to eliminate costs by:

  • maintaining a simply structured SMSF, without ongoing professional advice.
  • investing while staying within your circle of competence, achieving appropriate diversification, maintaining high liquidity and staying focused for the long term.