Choosing the appropriate SMSF administrator will generally come down to these key issues:
(a) Is either a personal accountant, or an SMSF administration company preferred?
(b) Do you want 'end of year' or 'daily' SMSF administration?
(b) What is the cost, and how do they charge?
(c) The total range of services offered in the package
Personal Accountant or SMSF Administrator?
There are predominantly two ways in which trustees can complete annual SMSF administration (other than doing it themselves). Either:
- Using a personal accountant/adviser (assuming they do SMSF admin) or;
- Using an SMSF administration company (usually found online)
Generally, the difference between these two options is that a personal accountant or advisor is somebody that the trustee will have a personal relationship with, and an SMSF administration company deals with hundreds of similar applications each year, meaning that the ‘personal touch’ can be lost. Personal accountants commonly take care of other aspects of trustees’ financial lives (i.e. business accounting etc), and can therefore provide an overall tax strategy, of which the SMSF if just one component.
For business owners who have a number of ownership structures, the personal accountant can be an ideal option where the SMSF is part of an integrated strategy and tax advice is a key component. For other trustees, however, a simple end of year admin service at the lowest cost is sufficient, meaning that an SMSF administrator is a better choice.
End of Year or Daily SMSF Administration ?
SMSF administration can now be broadly grouped into two quite separate service categories:
1. Year end administration
This would include the majority of accountants, and many of the SMSF administration companies. Basically, at the end of the financial year, the trustee(s) provides the administrator with all fund-related paperwork, along with any explanations of other transactions, which the administrator then begins to process. Once an audit file is prepared, this is passed on to an independent auditor who carries out the required audit of the fund. Once signed off, the administrator prepares member statements, lodges the income tax returns, as well as any other services included.
2. Daily administration
This is the administration process where all the transactional data of the fund goes through the administrator and is input into their systems on a daily basis. The objectives of this system are to:
- Pick up compliance issues as they happen (e.g. if a withdrawal is made from the fund with no supporting documentation and it does not appear to be allowed under the SIS act, the administrator can alert the trustees at the time rather than after year end)
- (In most cases) use an online administration system; allowing members to see their super fund and its components in an electronic overview.
- Produce a more efficient administration system by spreading out duties across the year, rather than attempting to fulfil all of them in a few weeks
- Reduce the paperwork load of the trustees
What is the cost, and how do they charge?
1. Charge based on the number of transactions (or time involved):
Traditionally used by accountants and administrators, there is a base fee, based on a certain number of transactions (or time involved), with a surcharge for transactions (or time) over and above this. Logically, the more transactions, the longer it takes administrators to complete the work. One important point to note is that the administration software used by most accountants or administrators these days can utilise data feeds of transactions from many of the service suppliers typically used by trustees (stockbrokers, cash accounts, bank accounts etc). This means that most of trustees’ transactions may not be manually entered at all anymore, but are just extracted via electronic data. This is very cost-efficient, as it reduces the time needed to manually input data.
2. Charge based on number of investments held:
Similar to the abovementioned, but based on the different number of investments held. Usually, there is a base cost for a certain number of investments (e.g. 15) and then a charge for every investment held over that number for the year.
3. Charge based on level of funds in the SMSF
This is where administrators will charge a different rate (usually either a flat dollar amount or a percentage of the total) based on the amount in the fund. For example, they might charge 1% for funds with up to $200,000 in assets, and then 0.8% for those between $200,000 & $500,000 etc. For SMSFs with many transactions, this is the best option. For funds with a lot of money, however, this could be a very costly option compared to the other alternatives.
4. Charge based on a flat fee only
While fairly uncommon, these administrators charge you a flat fee regardless of how many investments, transactions, or amount of assets are in the fund. This type of setup is ideal as there are no surprise fees, and trustees can make as many transactions as needed, or keep as much money as possible in the fund without incurring additional fees. It is because of the abovementioned administration software that reduces manual data inputting that makes this flat fee option more realistic for an administrator to charge.
What are the actual services offered?
It is important to look at the whole of a service before deciding on an administrator. For example, a provider may be very cheap, but that may be because they run a limited service or place restrictions on investments. Generally, all of them will be able to provide the basic level of administration such as financial statements, ATO annual compliance/tax return, and organisation of the annual audit.
The difference, however, will generally be in the added services or restrictions, so when comparing prices, look at these key issues:
1. Does the service complete reporting to the ATO when a member takes a benefit and does it process Eligible Termination Payments (ETP’s)?
2. Do you want to reduce your paperwork and let the admin provider take care of all the mail for the fund, or do you want to collect it yourself?
3. Does the package include personal / general advice on superannuation and/or investments? Does it include retirement planning when needed?
4. Does the service come with an online facility to see the components of your fund?
5. Does the service include the provision of technical advice throughout the year? If not, where will you receive this?
6. Does the administrator provide trust deed upgrades? When laws change, you may need to upgrade your trust deed.
A process to find the right administrator for your fund is to:
1. Decide what type of service you want (year end admin/daily admin)
2. Decide whom to do it through (i.e. an SMSF admin company/personal accountant)
3. Decide what services you want included in the package (i.e. admin only/admin and ongoing strategic advice etc)
4. Narrow the administration providers down to a short list, and then choose the most cost-effective option that meets all of your needs.
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