Product and Service Reviewsesuperfund review 2020 - esuperfund SMSF problems

April 14, 2020by Grow SMSF

Esuperfund is a Melbourne based online low cost SMSF provider. Their fees per year are $999, but the experience people have with this provider are mixed, so as a specialist accountant in SMSFs I thought I would share my experience in this esuperfund review.

Esuperfund, like any business exists for one reason and one reason only: To make a profit and provide a return to the owners. There is nothing wrong with this at all – but its important for astute SMSF investors to understand how a low cost SMSF service provider like esuperfund generates a profit.

My esuperfund review

There are four main things that esuperfund does as part of its business model to ensure profitability:

  1. Restrict and control the accounts you can use
  2. Negotiate sometimes sizable commissions on accounts and products
  3. Outsource work back to you
  4. Lower service levels

Please understand that I don’t have a problem with esuperfund, its owners or any of the above four things. As an online SMSF provider they’ve built a successful business through the low cost / low cost model that has removed barriers to people who want to take control of their wealth via a self-managed super fund but are put off by the seemingly high fees of traditional SMSF accounting services.

What challenges me professionally is the combination of all four together. This esuperfund review provides the facts surrounding the service and provides some context and perspective. This review does not intend to discredit the business in any way.

To put it another way this esuperfund review is not really about esuperfund at all.  It is about enlightening current or potential SMSF trustees to the practicalities of running a fund and working with your service providers.

esuperfund review ANZ V2 Account

Channel you into recommended products

Controlling accounts that can be used makes good business sense. By controlling and restricting the inputs and you can streamline processes for efficiency enabling cheaper service delivery.  However this contradictory when you consider one of the major reasons people establish an SMSF in the first place is choice.

Choice is critical with SMSFs.  This is not just about choice of investments (e.g. property, shares, managed funds etc.), but of bank accounts, brokers, platforms and service providers.

I originally wrote an esuperfund review in 2015 and at the time choice was limited when it came to bank and broker accounts.  Although esuperfund will provide either a ANZ V2 Plus Account or a Commonwealth Bank Accelerator Account as part of the SMSF establishment process, these accounts are not compulsory. As trustee of your SMSF you can choose any bank transaction account you like, but there is a catch.  Where you make a choice to use a different bank account (or broker account), esuperfund cannot receive the transaction information through there system meaning you have to provide the data and statements to esuperfund which creates more work for you and for them.

By comparison, Grow (and many other SMSF administrators) can obtain automatic direct daily data for over 20 bank accounts as well as transaction data from 50 other building societies, credit unions and banks. I’ve read a number of esuperfund clients saying that they like the fact the transactions are feed into the esuperfund accounting system, and don’t get me wrong its an important feature, but in 2020 its very common functionality.

What potential SMSF trustees need to research is whether the providers they may be forced to use are suitable for them.  Over the last 14 years since I’ve been running my own SMSF I’ve trialed a number of banks, brokers and other investment providers – so I personally have a very good idea on what providers work extremely well with SMSFs.

The challenge for many people – whether you’ve already established an SMSF or not – is determining what accounts actually have the features and usability you need.  You don’t know what you don’t know.

I recommend potential trustees speak to an experienced SMSF service provider and get their opinions. They will know what accounts will work well for their clients and with new providers entering the market all the time (think fintech companies and neobanks) there are always more options available.

 

Commissions on recommended accounts

esuperfund commissions

There is more than one way to catch a rabbit.  Traditionally most SMSF work has been done by accountants, who either charge an hourly rate based on the time it takes to complete the work or a fixed fee basis. This is changing as more SMSF trustees utilise specialist SMSF administration providers who only offer fixed-fee packages (such as we do here at Grow).

Esuperfund works on a hybrid model – they charge an annual fixed fee ($999 which is sometimes discounted for a year) and also receive commissions on some of the products used by their clients. This is all disclosed in their FSG. The esuperfund FSG (June 2020 version) can be found here: Financial Services Guide. Please note that you should check the esuperfund website for the most up to date version as these documents and their content change on a regular basis.

The payment of commission on financial products has been common practice across the Australian financial services industry for a long time. Large financial institutions are have previously been accused of restricting the products their financial advisers can recommend to products owned by the financial institution which compromises the quality of advice provided.  This was all exposed in the Banking Royal Commission. Although both before and after the Royal Commission laws have been changed to reduce or eliminate commissions on financial products, legacy commission arrangements and other forms of revenue sharing are still in place with many businesses.

As part of my esuperfund review and reading their FSG document, esuperfund collects commission on the following types of products and transactions:

  • Share trades
  • Bank accounts
  • Term deposits
  • Insurance products
  • Options and other derivatives trades

The following information is take from the “How we are Paid” section of the June 2020 version of the Financial Services Guide (FSG) located on the esuperfund website. ASIC recommends that you read the FSG of any potential service provider when considering using their product or service.  Understanding the additional revenue streams the business earns is a key part of this esuperfund review.

CommSec Shares

  • For Share Trades under $25,000 a commission of up to $15.76 per trade is payable to ESUPERFUND by CommSec.
  • For Share Trades over $25,000 a commission of up to 0.062% per trade is payable to ESUPERFUND by CommSec.

The share trading fees you pay via esuperfund are not higher than what you would pay if you went directly to CommSec, however who actually receives what revenue does change.  You can check the CommSec brokerage fees on their website here: Rates and Fees

Assuming esuperfund gets the maximum of “up to $15.76 per trade” with CommSec, if your SMSF makes 20 trades per annum, then they receive 20 x $15.76 = $315.20.

It’s also worth noting that although CommSec is one of the most popular online stockbroking platforms in Australia (especially for SMSFs) it is also relatively expensive compared to new entrants such as SelfWealth. This means in some cases by using CommSec and esuperfund you may end up paying double, or almost triple the amount in brokerage fees compared to other providers.  For a comparison of brokerage fees between CommSec, Ebroking and SelfWealth click here.

EBROKING Shares

  • For Share Trades under $25,000 a commission of up to $16.75 per trade is payable to ESUPERFUND by EBROKING.
  • For Share Trades over $25,000 a commission of up to 0.075% per trade is payable to ESUPERFUND by EBROKING.

The brokerage rates payable by your SMSF on share trades with EBROKING are detailed on the esuperfund website here. The commission paid to esuperfund on share trades with EBROKING is not in addition to the published brokerage rates on their website.

Assuming esuperfund gets the maximum of “up to $16.75 per trade” with EBROKING, if your SMSF makes 20 trades per annum, then they receive 20 x $16.75 = $335.00.

Esuperfund review – other commissions

The following is a summary of other commissions potentially received by esuperfund as part of my review of their financial services guide:

  • Commsec options: For Option Trades under $10,000 a commission of up to $11.77 per trade is payable to ESUPERFUND by CommSec. For Option Trades over $10,000 a commission of up to 0.118% per trade is payable to ESUPERFUND by CommSec. 
  • EBROKING options: For Option Trades under $10,000 a commission of up to $9.95 per trade is payable to ESUPERFUND by CMC Markets Stockbroking. For Option Trades over $10,000 a commission of up to 0.123% per trade is payable to ESUPERFUND by EBROKING. 
  • CMC Markets CFDs: Refer to page 4 of the esuperfund FSG.
  • FP Markets: Refer to page 4 of the esuperfund FSG.
  • CBA Accelerator Cash Account and ANZ V2 Plus Bank Transaction Account: Commission is payable up to 0.60% per annum of the cash balance.
  • ING Direct Bank: Commission is payable up to 0.20% per annum of the cash balance.
  • AMP Term Deposits: Commission is payable up to 0.20% per annum of the cash balance.
  • Macquarie Bank Term Deposits: Commission is payable up to 0.20% per annum of the cash balance.
  • Zurich Australia Limited: Commission is payable up to 20% per annum of the Insurance Premium
  • AIA Insurance: Commission is payable up to 27.5% per annum of the Insurance Premium.

It may be argued that the SMSF client is no worse off as the brokerage they are paying or the interest they can earn via esuperfund is not different from what they would pay or receive if they went directly to the provider. It’s also possible the actual commissions received by esuperfund are lower than the above, however they still need to disclose the above rates of commission due to legacy arrangements.

One interesting point is my original esuperfund review from 2015 had the annual fees as $699.  Now the annual fee with esuperfund is $999 (when not discounted).  This equates to a $300 or 42% increase over this 5 year period. Incidentally, over this period interest rates have fallen to historical lows and law changes have significantly reduced the commissions that can be paid on financial products.  Its my educated guess that esuperfund has had to adapt their fee model to ensure continued viability as their commission revenue has decreased.  Once again – there is nothing wrong with this – it’s a commercial reality and SMSF administration is a low-margin high volume business.

However it is important to compare apples with applies and understanding where and how esuperfund generates revenue.  In some cases the overall fees would be lower for the SMSF if they paid a higher annual SMSF administration fee to access a wider range of data-fed brokers (especially the newer, low cost entrants such as SelfWealth and others).  This is because the higher fixed SMSF administration fees would be offset by the lower transaction fees on trading.

I’m not the only person to shine a light as these commissions.  Back in 2015 James Frost from the Financial Review penned an article entitled: How discount SMSF players are clipping your ticket

 

You’re the accountant with esuperfund

esuperfund code your own transactions

 

I’ve had a number of clients and colleagues use the esuperfund service and they’ve relayed some interesting information about how it works. One comment that sticks in my mind was that “using esuperfund is like using the self-service check out at Woolies – you’re buying from them, but it’s you doing the all work”. It’s an appropriate analogy.  The esuperfund client portal requires your as the SMSF trustee to categorise and code specific transactions yourself and upload supporting documents for the auditor.  This by itself can potentially be dangerous if significant items are incorrectly categorised and there could be negative tax or compliance impacts if their quality control systems miss something important.

Once again this is something that by itself is not a problem. The more work that you as a client or customer does, the quicker and easier it becomes for the service provider, and this reduces the cost of providing the service.  Fairly simply concept.

What I don’t like about it however is the lack of incentive to make things easier on the SMSF trustee – it’s all about making it easier on them as a business.  Although the fees paid to any accountant or administration business that looks after SMSFs is for completion of annual accounts and tax returns, what you are really paying for is the administrative burden being lifted from you onto someone else.

When conducting my esuperfund review it became apparent that esuperfund does not lift any administrative burdens from clients.  Some people actually like the hands on “DIY” approach. However most people who’ve been running an SMSF for a number of years understand that the less time spent paper chasing on behalf of your service provider the better.  There are more important things SMSF trustees should be spending their time on such as ensuring their investment strategy is suitable and implementing it to ensure the best outcome for their situation.

I’ve been looking after many hundreds of SMSF clients for more close to 20 years and I am happy to say that for many of these clients, their ongoing compliance obligations can be looked after with virtually no paperwork and no effort from them.  This is because of the work that’s been done around automation and opening up 3rd party access to reporting and information.  Their time is spent on either managing their SMSF investment portfolios, or just living their lives – not jumping through hoops for their SMSF service provider.

While conducting this updated esuperfund review, I started looking at their service through a different lens.  I no longer view esuperfund as an SMSF administration provider like the businesses I’ve operated. In my opinion esuperfund can best be thought of as an online SMSF administration platform with audit and tax lodgement functionality attached.

So they provide more than an online SMSF accounting package, but less than a full-service SMSF administration provider.  It’s a unique model and although not perfect, it’s obviously been and is a successful and profitable business, so from an entrepreneurial perspective I tip my hat to them.

When considering a service provider, find out exactly the level or paperwork you need to organise. My opinion is that “less is more” when it comes to SMSF administration.

Comparatively lower service levels

A great quote from the last few years from Bryan Kramer that sticks with me is:

esuperfund contact no

Can you pick up the phone and speak to a human who knows you, knows your SMSF and can provide you the info and advice you need when you want it? Or are you forced to crawl through pages and pages of web content and FAQs?

Personalised service should be becoming easier with technology, though many companies are guilty of letting it make their service cold and impersonal – similar to the struggles of large industry and retail superannuation funds where you are known by your member account number and balance – not as an individual.  Take a minute and try to find the esuperfund phone number on their website. Take 10 minutes even. If you find it, please let me know.

Esuperfund is geared up to provide an annual compliance service. This means they only touch your SMSF once a year. This is not dissimilar to the wider accounting community which is also geared towards an annual in arrears type of service. The 2018 Future of SMSF survey conducted by Aaron Dunn of Smarter SMSF showed that approximately 40% of SMSF accountants and administrators complete the work annually and another 25 – 30%  complete work ‘as required’ – which basically means they also do it annually.

annual SMSF compliance

Although this approach was acceptable for most SMSF trustees and their advisers in the past, the trend is now moving towards more frequent and up to date reporting for SMSFs.

I’m not talking about the ATO and audit obligations which are annual, but the ability to jump online 24/7 and see a consolidated up to date view of your SMSF portfolio – cash, TDs, shares, managed funds and property – all in one place. Being able to easily view and track things like contributions against the contribution caps and pension drawdowns are essential for SMSF trustees.

Up to date information is also is critical for the provision of timely and accurate advice.  I regularly see how small pieces of timely information provided can create a significant positive impact and improve outcomes for members of SMSFs as well as removing the likelihood of avoidable compliance breaches that will draw the ATOs attention.

SMSF trustees need to think about the difference between price (what you pay) and value (what you get).  In case of my esuperfund review experience it’s both low price and in my opinion low service by design.  

Once again, the esuperfund solution is designed to be self-serve.  Their client portal makes you code and classify transactions and upload supporting documents for the auditor (where things are not automated).  The esuperfund website has a plethora of helpful information, the majority of which is well written and accurate (not 100% accurate – but this is more a reflection of the constant rule changes impacting super and SMSFs rather than esuperfund).  For their service to be delivered at the price point of under $1000 per year, they have to make the service as low-touch (for them) as possible.

There are dangers of having a low-touch / low service model with self managed super funds.  It may work OK when the SMSF is relatively simple.  For example for someone, or a couple, that are in accumulation mode and simply want to invest in direct shares and ETFs and are not doing any more than a handful of share trades per year.  People who fit this category – which historically many SMSFs that use esuperfund do – have relatively simple needs and the esuperfund platform seems to cater for them quite well: bank and share trading data is automated, insurances available via Zurich and AIA, employer contributions via Superstream etc.

esuperfund problems

Where esuperfund become less suitable in my experience is where an SMSF begins to go outside the ‘simple’ and dive into the more complex investments and strategies.  I need to acknowledge my own bias at this stage.  In my work I’ve often taken on SMSF trustees who started with esuperfund however needed to move away from the esuperfund service due to experiencing either compliance issues with the ATO (normally from their own actions or inaction) or a need for specialist advice that esuperfund is not designed to provide. 

Due to this, my perspective is skewed because if someone was happy with esuperfund, then its likely they would not have sought advice or support from me or a business I was associated with. Obviously there are thousands of SMSF trustees who are happy with esuperfund.

Here are a couple of recent examples of SMSF clients I’ve assisted who’ve had problems with esuperfund:

  • SMSF had invested into a 50/50 unrelated private unit trust, which had invested into a start up company.  The auditor used by esuperfund issued an auditor contravention report (ACR) to the ATO on the basis the trustee didn’t provide appropriate information to the auditor regarding the (legitimate) investment.  We happened to look after the SMSF that owned the other 50% of the unrelated unit trust and that SMSF had no issues with the independent auditor (who happens to be one of the largest and most reputable SMSF auditors in the country).  We worked with the trustee and the our auditors to get the non-issue resolved.  The issues could have been avoided if the trustee could have spoken to someone at esuperfund or even the auditor directly to get a better understanding of what was required in terms of evidence to satisfy the auditor.
  • An SMSF had a mother and son as the members and individual trustees.  The mother was in pension phase and retired, and had needed to access an increased amount of cash from the SMSF until a property settlement occurred.  Due to the investments of the SMSF dropping during the 2020 financial year, the pension member overdrew the her balance (i.e. it went under $0) and effectively chewed into her sons member balance and became a loan to her as a member which is a serious breach.  She had contacted esuperfund to determine how much she was allowed to withdrawal during the year and they simply referred her to 30 June 2019 closing balance.  The auditors reported the breach (which they had to do) and the fund is now on the ATO radar for further compliance action and potentially a significant admin penalty (fine).  The saving grace for this particular scenario is COVID-19 has temporarily delayed the ATO from much of their compliance action.
  • A doctor and his wife used esuperfund to set up an SMSF with the intention of using a limited-recourse loan (LRBA) to purchase an investment property.  They set up the SMSF and organised all the bare trust documentation, signed a contract and paid a deposit for a property.  The contract fell through and the significant deposit was refunded into a solicitors trust account.  The doctor decided to use the refunded deposit for a deposit on another property, however as he wasn’t able to obtain any guidance from esuperfund, he ended up signing a contract in the wrong name (his own) rather than in the name of the bare trustee.  The purchase was settled and the deposit effectively became a loan to the member.  The only way to unwind everything now is to sell the residential property and repay the money back to the SMSF.  It’s a very expensive mistake that the trustee made which could have easily been avoided if he had the ability to pick up the phone and speak to an SMSF specialist for guidance.

The above are three are just a recent same of dozens of SMSF scenarios I’ve come across in the last 10 years.

Something that I’ve noticed in the last few years is that the independent auditors used by esuperfund are becoming increasingly ‘trigger happy’ when it comes to lodging Auditor Contravention Reports (ACRs) to the ATO.  This is not unique to esuperfund as the ATO as the regulator is putting more pressure on auditors as they are the gatekeepers when it comes to SMSF compliance.  This trend – which is not likely to change anytime soon – potentially puts SMSF trustees in danger where they don’t have the specialist support and guidance with their SMSF.  This is especially so if the SMSF is not ‘vanilla’ when it comes to its investments and strategies.

 

Summary: esuperfund – good for some

Some people may read this article and totally disagree with me on my opinions.  Hopefully it will enlighten others about the practicalities of running an SMSF and what to look for with a potential service provider which is the purpose of this unbiased esuperfund review.

Many people use esuperfund as their first provider when it comes to setting up an SMSF.  This is both good and bad.  It’s good as esuperfund is low cost and might enable access to an SMSF for people with lower balances, however the downside is that when people first start an SMSF, it’s the time they need the most support.

For example the majority of SMSF I take over from esuperfund have individual trustees.  Best practice for a number of reasons not covered in this review is to use a special purpose trustee company, and individual trustees should be by exception.  Similarly, esuperfund sets the expectation that an SMSF is Do-it-Yourself – where the best outcome is always where you can tap into the specialist expertise and guidance from an SMSF specialist.

In the case of esuperfund it is my personal opinion that for most people there are simply too many compromises for the offering to be attractive to anyone but a small niche of SMSF trustees who employ a very simply, vanilla investment strategy and don’t have much need for support.  This is also probably the biggest compliment I can provide in this esuperfund review: They’ve determined their niche and they are successfully working it.

My esuperfund review

As part of my esuperfund review, I give them following ratings:

  • Price – 3/5
  • Quality of Service – 2/5
  • Communication – 2/5
  • Online Functionality – 4/5
  • Technical Expertise – 3/5
  • Overall Rating – 3/5

My core recommendation for people thinking about using esuperfund for their SMSF would be to do their research and go in with ‘eyes wide open’.  Understand what they’re paying and what’s NOT available to them via the esuperfund solution.  Understand the esuperfund business model and how they derive their income and if in doubt, speak to an SMSF specialist adviser like me or find an SMSF Specialist Advisor through the SMSF Association.

More questions on my esuperfund review?

If you have any questions or feedback on this esuperfund review, please contact me.