Journey to DiY Super: Part 2 – SMSF and other options
In Part 1: Why DiY, I explained that I felt my Super funds were failing me. So I decided to look at other options. I wanted to much more control over investment decision. But I don't want to spend too much time managing it.
I came across three options:
- Switch Super funds;
- Start a Self Managed Super Fund (SMSF);
- Switch to the direct shares / DiY Super option within a Super fund.
Switching Super funds? I want more control
The simplest option would be switching to a better Super fund. When I searched Morningstar, I found that my BT fund was one of the worse performing funds within the category.
I thought about switching to an Industry Fund. They are generally lower costs. However, after going through the journal of understanding my Super, I wanted more control than that.
I didn't feel that I would have enough control by selecting another pre-packaged fund. So I decided against this option.
Self Managed Super Fund (SMSF) - too expensive for me
SMSF is a very popular option for Aussies. ATO stats show that 1 million people use a SMSF to manage their Super. Around $580 billion worth of Super money is managed through SMSFs.
Admin is a real issue for me with SMSFs. There are a few components of SMSF admin. First up, you need to set it up. This involves a bunch of legal documents, creation of a trust, etc. This costs around $150 - $450 using online only platforms.
Then you need on-going administration support. Getting certified people to audit your SMSF. This is the real expensive part. You are looking at $1,000+ per year here.
Because the cost of admin is relatively high, ASIC recommends that SMSFs are only suitable to people with $200,000+ in their Super. When you compare $1,000 in admin fee for a $50,000 Super portfolio, the fee works out at 2.0% per year. Even if you can save tonnes in the investment / fund management fee, your Super wouldn't be cost effective.
On the investment side, SMSF has the great benefit of letting you invest in (almost) anything. Lots of people use an SMSF to invest in investment property.
But I have no intentions of buying an investment property with my Super. This makes an SMSF much less attractive. The investment options I want in my Super is basically the ability to invest in Exchange Traded Funds (ETFs).
Since my Super portfolio is less than $200,000, the admin fee makes SMSF a non-starter for me. I need to consider another alternative to take control of my Super.
DiY Super with Direct Shares Options
Super funds are worried about the exudus of members to SMSFs. So they're offering new investment option for members. Most funds call it Direct Shares option. You can use your Super money in the fund to invest in direct shares, listed on the ASX. This provides the flexibility for me to invest in ASX listed ETFs.
At the time of writing, I found the following Super funds offering this DiY Super option. I'm sure there will be more and more Super funds offering this solution. So check with your own to see if they do.
With the DiY Super option in these funds, the admin fee per year is much lower than SMSFs. Admin fee ranges from $150 per year to around $400 per year. This is around 50% - 80% cheaper than SMSF admin fee.
For me, DiY Super options within large Super funds offer a decent solution. They balance low admin fee (compared to SMSFs) and provide enough control over the investment decision. The best of both worlds.
In the next post, I will go through which Super Fund's DiY Super option I went with. I will also talk about the criteria I used to make this decision.