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Management Fees - Which one is 500% higher, Agents or Super Fund Managers?
Friday, January 01, 2010
We thought we'd start the New Year off with a topic that most people find boring but it could in fact save you tens of thousands over your lifetime.
The Federal Government is currently conducting a review of Australia's superannuation system, titled the "Review into the Governance, Efficiency, Structure and Operation of Australia's Superannuation System". One of the areas under review is the fees charged by superannuation funds for managing your money.
A recent survey by ANZ shows that many superannuation account holders rarely check their statements, don't know what the fees are and don't check whether they are reasonable.
Fund managers charge a management fee + other administration fees. This commission rate differs between funds but the recent Rice Warner Actuaries (2008) Superannuation Fees report, found that the average charge for personal super was 2%. Sounds cheap until you discover that it is charged on the total value of the asset managed, not on the income.
To directly compare super fund management fees and agent property management fees, you would have to imagine that the property manager assesses the base value of your property, then adds any capital gain or loss each month, then adds the dividend income (rent) and then charges fees of 2% + administration fees on the total.
To directly compare agent property management fees to super fund fees, you could have to assume your super fund manager charged the average commission rate of 8% only on the dividends or interest earned on your funds that they manage and invest for you.
So how do these compare? The median value for a house in the Newcastle area is about $332,000, and the median rental for a 3 bedroom house is about $320.00. So excluding administration and other fees and assuming that your super generates the same income return as the rent, how does it look?
Property Management Fee
Asset Value: $332,000
Rent Income (year): $16,640
Agent Fee @ 8% of rent.
Agent Fee per year = $1,331.20
Asset Value: $332,000
Rent Income (year): $16,640
Agent Fee @ 8% of rent.
Agent Fee per year = $1,331.20
Super Fund Management Fee
Asset Value: $332,000
Dividend/Interest (year): $16,640
Total Asset + Income: $348,640
SF Fee @ 2% of total funds.
SF Fee per year = $6,972.80
Asset Value: $332,000
Dividend/Interest (year): $16,640
Total Asset + Income: $348,640
SF Fee @ 2% of total funds.
SF Fee per year = $6,972.80
As you can see the super fund manager in the above example is charging 5.2 times, or 523% more than the agent for managing the same value of asset. In other words, for the agent to charge the same as the fund manager they would have to increase the management fee to 42% of the rent collected!
If this is surprising to you, get out your super statements and start asking questions of your financial advisor or superannuation fund provider. Make sure you are getting the service and returns that you are paying for!
To find out what your home or investment property is worth contact us today for a free, no obligation market appraisal on 4902 7222
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