Value of DIY super funds worth less than $500,000 called into question

The value of smaller self-managed super funds has been called into question, with a management consultant presentation suggesting that funds with less than $500,000 might not deliver returns after various fees are paid.

According to the Australian Financial Review, the Oliver Wyman presentation, based on private and government research, also suggests that around 25% of SMSFs pay annual management fees of more than 6%, despite more than 10% of funds being invested in a single asset. SMSFs account for one-third of Australia’s super savings.

But Castellan Financial Consulting director Bruce Brammall says SMSF are established not just for financial reasons, but to take control of investment savings.

And the use of professionals to expand into property and fixed interest, for example, comes at a cost, he says.

He also disputes that $500,000 is an insufficient amount for an SMSF, saying even half that amount can be a starting point, depending on personal circumstances.

“If you’re going to use a financial adviser, pay them to help you manage your assets and take that advice, then $400,000 is sufficient,” Brammall says.

And when you’re dealing with between $500,000 and $1 million, the cost is less of an issue, he says.

Having said that, Brammall believes there is a problem of some individuals opening an SMSF too quickly, often at the urging of accountants. He says that all too often these funds prove uneconomic and need to be closed.

Sharyn Long, chairman of SMSF Professionals’ Association of Australia, told the Australian Financial Review that the average balance was $1 million and rising, in contrast to fees which tend to be fixed.