SMSF administration choices
When you read our article on SMSF Administration, it all seems fairly straightforward with not a lot else to consider.
However the reality is that SMSF administration comes in a number of different flavours. And it’s not a case of one being better than the other. They are just different, and do different things and have different pricing – even though they all essentially have the same end goal of satisfying your SMSF administrative obligations. The purpose of this article is to show you the differences and highlight their features so you can compare them in a like-for-like way, and see which one fits your circumstances.
There are generally three different ways that trustees can complete their annual SMSF administration:
1. Directly engage the services of a SMSF admin provider, usually found online
2. Use a personal accountant
3. Use a financial adviser who, in turn, outsources the actual admin work
Lets have a look at the key features of each one.
An SMSF administration company will generally be the cheapest option, as they are providing just an admin service without any personal advice or guidance (although it’s true there are exceptions to this). You provide them with your records, and they do the required financials and statements, ATO lodgements, and organise the audit. This can be a good option for those who are organised with their paperwork, and don’t have any other structures to be considered or have the need for any further financial advice.
A personal SMSF accountant will provide the same end result, however the process will be different in that you have a personal relationship with them. This is particularly so if they are also looking after other business for you, such as your business accounting or personal tax planning. This can be a good option for those that prefer the more personal touch and don’t mind paying for it, or perhaps those who have a range of accounting or tax ownership structures guided by the accountant, whereby the SMSF is just one of them.
A financial adviser can again provide the same end result, however they will generally be outsourcing the actual accounting and audit function to a SMSF admin supplier (like one we discussed above, but who market their services to financial advisers). The adviser will place themselves in the centre, whereby they are providing SMSF strategy advice to the trustee, perhaps also providing investment advice, and will help organise the SMSF admin on your behalf with the SMSF admin company. This option can be good for those that specifically require financial strategy advice, and perhaps (but not necessarily) also investment advice and monitoring.
The other issue you have with SMSF administration services, quite apart from who does it, is the choice of either annual or daily administration.
So what’s the difference ?
Annual administration is the one that most people would be familiar with, and is the most common. As the name suggests, it involves completing the administration requirements of the fund once a year to coincide with the annual ATO return and annual audit. This means that SMSF member statements and balances are only updated once a year, albeit accountants can do what are called “interims” during the year to bring the fund up to date at that point if required for some reason.
Daily administration is a bit different. This type of admin is where an attempt is being made to ensure that at any time during the year, you will have running member account balances that are up to date on a daily basis.
This is achieved via a couple of mechanisms. Firstly, modern SMSF admin software can eliminate a lot of manual transaction entry via data feeds from things like cash transactions from banks, and share transactions from stock brokers, so that as transactions happen they can be updated in member balances in real time. The other is to act as the mail house of the SMSF, so that all correspondence for the fund is received by the administrator, and hence can be loaded into the software as its received. The benefits of daily admin include being able to pick up on potential compliance issues as they happen rather than after year-end, reducing the paperwork load on the trustees, and also the efficiency of spreading admin work over the year rather than having to do it all in a smaller window of time at year end.
SMSF administration services are not all priced the same, and we don’t mean that they don’t cost the same. We mean that how the price is even arrived at can be vastly different from one provider to the next. These are the categories that they tend to fit into:
This is historically the most common method, particularly with personal accounting where the labour costs are generally at hourly rates. The more time spent on the fund, and the more complex the fund, the more it costs. So if you are doing a lot of trading in your SMSF investing, and have a mountain of transactions, the cost of this option can really start to pinch.
There are not a lot of these around, and they generally come with conditions.
For example, to provide a service at a fixed cost, the admin provider will need to ensure they are not providing the service at a loss. So to do that, one of the conditions may be that you can only use a bank account and a stock broker who’s transactions are able to be data fed into the software that the admin provider uses. This enables them to keep their labour costs at a more fixed rate, and hence they can offer a fixed fee.
The other option they may offer you is that you supply all your transactions in an excel file that they can upload to their software. Again, its about reducing individual manual entry to keeps costs down.
This one is interesting. You have a base fee, which is based on only having a certain number of investments in the fund during the year. However, you can trade those individual investments as much as you like. If you go over the number of investments threshold, then you pay more based on how many extra you have.
This one is fairly self explanatory. The more money in the fund, the more you pay. For those funds with higher balances, this method is quite unpalatable, as they argue why should they pay more when the time taken to the do the job is the same as an identical fund with half the amount of money in it.