Most fund researchers charge a fee to allow members to compare super funds performance and services in details. But here’s a way to get such a comparison for nothing.
Fund researcher Chant West, for example, charges $55 to compare three super funds at a time using its superb AppleCheck service. Fortunately, super funds are increasingly offering AppleCheck on their websites for free. These funds include HOSTPLUS, First State Super and AustralianSuper.
AppleCheck covers the broad points you probably want to examine when comparing funds. These include: investment returns of popular investment options from one to five years; fees for investment management and administration; and insurance options and costs. The service also looks at the quality of fund administration and member services (analysing the funds’ help desks, member education, availability of financial planning, ability to make binding death benefit nominations and availability of transition-to-retirement pensions).
Most retail funds have commissions for financial planning advice built into their fees – whether or not the advice is used by a member. If you are not using the advice, why pay for it?
The cost of unused in-built financial planning advice can act as a big handicap to fund returns.
Some retail funds give members the choice of opting out of being charged in-built commissions for investment advice.
A fundamental difference between commercial master trusts and industry funds is the number of investment options. Master trusts generally have a huge variety of investment options whereas industry funds have only few. And the bottomline is straightforward: the more investment options, the higher the fees – whether or not you use even a few of them.
Between 80-90% of large fund members are in their funds’ premixed default options and would rarely even think about making their own investment choices.
Consider super funds offering top insurance deals to members in your circumstances.
For instance, SuperRatings reports that netwealth, Catholic Super and NGS Super are generally providing among the best deals in death and total disability insurance at this time. And SuperRatings likes how REST Superannuation has revamped its death and total disability insurance so the amount of cover changes as members age and their insurance needs change.
In short, under REST’s Life Stage approach to insurance, death cover begins with a lower level of coverage when members are young and then automatically increases as their obligations presumably increase – but then the level of cover reduces again as they reach the next stages of their lives.
Members who join a new fund as an individual rather than as part of an employer group sometimes have to undergo medical assessments before being accepted for insurance cover. This can be a real trap that is often overlooked when members swap funds.
Fortunately, some industry and commercial super funds offer a reasonable level of cover to new members without insisting on medical assessments. For example, legalsuper offers new members up to age 45 $440,000 in death and permanent disability insurance without a medical assessment.
This can occur if you change super funds but perhaps because of an existing medical condition cannot gain death cover in the new fund (see strategy nine). One way to sidestep this insurance trap is to leave just enough of a balance in your old fund to maintain insurance cover while you try to gain cover with another fund of your choosing.
SuperRatings names its favourites among the best new super funds as – AMP Flexible Lifetime Super Easy (aimed at members under 50 who have under $100,000 in super as well as the self-employed, there are no adviser commissions, very competitive fees and a simple online approach); Individuum (fully web-based, easy to understand, competitive fees, solid investments, good insurance offerings and aimed at younger members); and Suncorp WealthSmart (10 funds rationalised into one to simplify super for members and improve value for money).
A debate currently being conducted in superannuation is the possible effect on some industry funds of the downwards revaluation of their unlisted assets. Members should make themselves informed on the issue – especially when looking for a possible new fund or evaluating their existing one.
The valuations of unlisted assets – which include unlisted property, unlisted infrastructure and private equity – didn’t move downwards nearly as rapidly as listed assets during the GFC as discussed earlier in this feature.
“Industry Funds typically have a much higher weighting to unlisted assets than retail funds – 28% versus 9% based on Chant West’s strategic asset allocation survey for June 2009,” says Warren Chant of Chant West.
“Unlisted assets have been an excellent source of returns for industry funds”, says Chant. But he believes the maximum exposure to unlisted assets should be no more than 25% or 30%, as they are not liquid and can be difficult to sell if the fund needs cash to pay members’ benefits.
“Members need to be aware that while listed assets fall quickly in response to market conditions,” Chant says, “there is a time lag for unlisted assets to respond to changing conditions.”
While listed markets had fallen from November 2007, the valuations of unlisted assets generally only began to fall in the December quarter of 2008. Since that time, most industry funds have shown downward revaluations of 10-20% in their unlisted assets, and there may be more to come, warns Chant.
He says that while members of most funds should not be unduly concerned about the issue of unlisted assets, they should ask their funds:
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