Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 190

Size matters for SMSF performance

An SMSF needs a balance of at least $200,000 to be cost-effective and sustainable, new research by SuperConcepts and The University of Adelaide’s International Centre for Financial Services has found.

A major study, When Size Matters: A closer look at SMSF performance, based on more than 88,000 fund-year observations, examined the performance of four fund sizes. The study found that SMSFs with balances over $200,000 significantly outperformed smaller funds in both cost-effectiveness and investment diversification. All SMSFs in the study had outsourced their administration.

Just over 20,000 individual funds, with an average asset value of $845,000 and average annual expenses of $8,919, were examined using figures from the 2008-9 to 2014-15 financial years.

The fund sizes were:

Size 1 funds: Asset values less than $200,000

Size 2 funds: Asset values between $201,000 and $500,000

Size 3 funds: Asset value between $501,000 and $1,000,000

Size 4 Funds: Asset values greater than $1,000,000.

As shown below, SMSF performance was found to be relatively similar for size 2 to 4 funds, although fund size 4 outperformed the others slightly during the last three fiscal years of the study period. The smallest size 1 funds consistently underperformed against all other sizes, and posted negative returns in five of the seven sampled financial years, including the last four.

SMSF performance

SMSF performance

Diversification into asset types

The study measured diversification by the number of asset classes in which a fund had invested with a weighting of 10% or more.

The largest size 4 funds held significantly more asset classes than size 1 SMSFs and, in fact, a balance of less than $200,000 showed deterioration in asset diversification.

“Fund diversification has, on the whole, marginally improved over time,” the report says. “At the beginning of our sample period, the average fund held investments in 2.06 asset classes, and this has increased to 2.15 at the end of our sample period. We observe an inverse relationship between the level of diversification and the volatility of fund returns.”

Expenses come in many guises

SMSFs incur many establishment and administration costs. The ATO’s list of common costs include:

  • actuarial costs
  • accountancy fees
  • audit fees
  • costs of complying with Government regulations
  • investment adviser fees
  • SMSF’s annual lodgement fee
  • life insurance or total and permanent disability insurance premiums
  • investment research subscriptions, and
  • costs for amending a trust deed.

As funds grow larger, the expense ratio drops due to greater operational efficiency.

“Expense ratios for the largest funds (size 4) are significantly lower than the expense ratios for the smallest funds (size 1). When a fund passes a threshold of having $550,000 under management, its expense ratio dips below 2%, whilst diversification and performance of the fund is comparable to any of the larger funds. Below this threshold, performance, diversification and expenses begin to deteriorate”.

The study concludes that while performance, diversification and expense ratios continue to improve as funds grow, these traits deteriorate in funds with asset balances below $200,000, making smaller funds inefficient. Some commentators suggest that small SMSFs are not sustainable and that the government should legislate a mandatory minimum size to start an SMSF.

 

Lee Anthony is studying for her Masters of Publishing at the University of Sydney. The full report can be downloaded here: 'When size matters: A closer look at SMSF performance'.

5 Comments
Doug
February 16, 2017

Hi SMSF Trustee,
What I meant was I was given those quotes for just the same basic service. I have no problem with paying more for further services but that was not what I was offered by the four administrators that asked for quotes after having personal meetings with three. I ended up going with an internet service.

Doug Reynolds
February 16, 2017

Sorry SMSF but I have to disagree with you. My administrator charges $795 and does a great job.

SMSF Trustee
February 16, 2017

I'm not sure if the Doug to whom I replied is the same as Doug Reynolds, but on the assumption that he is, then I'm sorry if I misunderstood what you were saying. I read the original post as saying that fees of $790 up to $3,500 were a rip off, as advisors just seeing SMSF as a cash cow by charging those fees. If that's not what you were saying then perhaps we're actually in agreement, but that's how I read it.

If you're getting a great service for $795 then that's fantastic. It sounds like just a basic compliance service, not a full self-management capability (mine includes trading on-line, fund information and research, information about legislative changes, full audit and tax returns, daily valuations of all assets and on-line access to valuations, etc). But if it gives you what you want, that's excellent.

SMSF Trustee
February 16, 2017

Sorry to be really blunt, but that's nonsense Doug. For the work that is done by anyone doing even a half decent job of auditing, doing tax returns and managing ATO relationships, processing investment switches, providing reports on fund income, capital gains, etc, admin fees of anything less than $5000 are very, very cheap in my view.

My fund is at the larger end of what's in the survey and I pay just over $10,000 a year in admin fees, but the work that's done gives me total peace of mind about the Fund complying with the law and being properly managed at all times.

Get real about the costs of investing people!

Doug
February 16, 2017

One reason that smaller funds underperform is the size of the Admin fees. I have been quoted anything between $790 for full admin including audit to $3500. I think a lot of advisors and accountants see SMSF management as a new cash cow.

 

Leave a Comment:

RELATED ARTICLES

The SMSF gaps in the Productivity Commission’s Superannuation Report

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

Latest Updates

Investing

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

Investment strategies

A closer look at defensive assets for turbulent times

After the recent market slump, it's a good time to brush up on the defensive asset classes – what they are, why hold them, and how they can both deliver on your goals and increase the reliability of your desired outcomes.

Financial planning

Are lifetime income streams the answer or just the easy way out?

Lately, there's been a push by Government for lifetime income streams as a solution to retirement income challenges. We run the numbers on these products to see whether they deliver on what they promise.

Shares

Is it time to buy the Big Four banks?

The stellar run of the major ASX banks last year left many investors scratching their heads. After a recent share price pullback, has value emerged in these banks, or is it best to steer clear of them?

Investment strategies

The useful role that subordinated debt can play in your portfolio

If you’re struggling to replace the hybrid exposure in your portfolio, you’re not alone. Subordinated debt is an option, and here is a guide on what it is and how it can fit into your investment mix.

Shares

Europe is back and small caps there offer significant opportunities

Trump’s moves on tariffs, defence, and Ukraine, have awoken European Governments after a decade of lethargy. European small cap manager, Alantra Asset Management, says it could herald a new era for the continent.

Shares

Lessons from the rise and fall of founder-led companies

Founder-led companies often attract investors due to leaders' personal stakes and long-term vision. But founder presence alone does not guarantee success, and the challenge is to identify which ones will succeed in the long term.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.