A new study by independent research firm Rainmaker Information found recently that Australia’s four big banks collect one third of all fees – nearly $10 billion – paid to super funds. The research concluded that the superannuation industry was drawing an estimated $30 billion in fees in 2014/15, with a 91% of that revenue paid to commercial wealth management businesses, and 33% to the four big banks. But fees are just one part of the equation.
In this article for Business Insider, Rainmaker SelectingSuper’s executive director of research, Alex Dunnin, explains how to choose a super fund to suit you.
1. Explain the offering to someone else.
How does the fund actually work, ie. What’s it’s actually offering?
A good test here is if you could explain it to a young child. Do you know what choices it offers, how many, and who’s in the investment team?
Is it well explained so you know where your money will be invested? Does the information on the website and in its main documents make sense?
If you’re in a non-traditional job or likely to take some time out of the workforce, is the fund flexible enough to let you turn your income and life insurance on and off when you need to? Or, if you’re a set and forget kind of person, does your fund have a life-stage option which calibrates your risk settings automatically over time?
2. Look beyond low fees to performance.
Fees matter, but not as much as investment returns. You should be judging your investment returns after the fees have been deducted.
Superannuation people call this the “net benefit”. Many super funds now charge between 0.6% and 1.5% and many charge in the sub-1% zone.
So do you know what fees you are paying? There is no relationship between fees and returns, but there is one between fees and the number of choices and features you get. This means you should not be afraid to pay high fees but you should know why you are paying them.
And if your fund is getting low returns you should definitely not be paying high fees. The great news is almost all superannuation providers now offer low fee products so if you want to pay low fees tell them to swap you into one of these cheaper products.
3. What else can it do for you?
Many super funds do more than just run your investments, they also provide life insurance, financial advice, and access to other investments too.
Some even offer discounts on health insurance, travel discounts and other things. Investment returns after fees are still the most important thing your fund delivers to you but if you think your fund is doing this well then why not see what else it can do for you?
4. Ask yourself why you’re choosing this fund.
There are lots of good super funds out there, so why are you joining this one? Do you feel confident you understand its comparative advantages or are you trusting a third party assessment?
If you’re being guided by a super rating website, do you know its methods for assessing a good fund? A good rating should be based on a quantitative analysis of the funds’ performance and deposits into your superannuation account net of fees, as well as a well-structured and appropriate suite of options and extras.
5. Get back to the core purpose.
The purpose of superannuation is to help you save for retirement. The job of your super fund is to help you do this. It does this by investing your superannuation money and making investment returns that help your super account to grow and get bigger.
Sure it’s true that you can’t predict what the returns will be next year, but that doesn’t mean you should leave it to chance either.
Good super funds know this and so have a demonstrable track record of being above average especially over the medium term 3-5 year period. The great news here is that if a fund has solid above average performance over the medium term it usually keeps them for a while meaning you have lots of warning if things are heading south.
Good returns for the past 12 months are a great sign the fund is doing well, but the acid test is how this flows into the medium-term results.
Finally, superannuation is your money. If you don’t like your fund, its now easier then ever to swap funds. Talk to your fund first as maybe you aren’t using it as optimally as you could.
If you do want to switch funds you can, but just do some simple research first and choose a fund that you will feel more comfortable with.
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