Direct shares and fund manager selection
If you want the ability to choose from a selection of managed investment funds, a commercial master trust may be your answer.
And if you want to choose from a large selection of managed funds as well as direct shares and term deposits, a wrap investment platform may be your answer.
McPhee says the top wraps include the Asguard Infinity eWRAP, Macquarie Super Wrap, BT Super Wrap and netwealth.
For instance, the netwealth Super Wrap from the Heine Brothers financial services group provides a choice of more than 250 local and international managed funds, listed shares (including direct international shares) and term deposits.
The netwealth Super Wrap markets itself as an alternative to members who want much of the flexibility of a self-managed fund without the administrative and compliance chores. (The fund does not provide for investment in direct property and exotic assets.)
Netwealth also offers a couple of scaled-down, lower-cost versions of its Super Wrap called the Super Accelerator Core and Super Accelerator Plus. The “Core” product provides the ability to invest in cash, term deposits and a choice of 11 managed funds. And the “Plus” provides the ability to invest in cash, term deposits, a large number of managed funds, Australian shares and certain unlisted investments such as property syndicates.
Matt Heine, executive director of netwealth, says the Super Wrap and the Super Accelerator products are specifically intended to win clients who may otherwise have established self-managed super funds.
Netwealth’s introduction of lower-cost versions of its wrap reflects where retail wraps have been heading in recent years. Investors are being given the choice of paying less for fewer investment options.
McPhee makes the point that if a fund member wants the ability to choose local shares but is not interested in choosing fund managers, certain industry funds such as AustralianSuper and CareSuper may satisfy their needs. For instance, AustralianSuper’s Member Direct option enables members to invest in the S&P/ASX300, term deposits and exchanged traded funds. And ING DIRECT Living Super provides the ability to invest in direct local shares for an extra cost, McPhee adds.
Balanced portfolio
You may want to hold most of your super savings in a widely diversified balanced fund. A fund with highly competitive fees and strong performance over the long term is best suited for this purpose. According to SuperRatings, funds that rank highly for investment returns, investment processes and fees include AustralianSuper, CareSuper, HOSTPLUS, REST, Sunsuper and Telstra Super. (SuperRatings classifies a balanced fund as one with 60-76% of its money in growth assets.)
Fund members should closely monitor the performance of their fund and be on the alert if its performance lags over a five-year period. A simple way to compare performance is to study the performance tables of the super fund researchers SuperRatings, SelectingSuper and Chant West.
LGsuper – Balanced was the top-performing balanced fund over the past five years to September with a return of just 3.3% a year, according to SuperRatings. It was followed by:
The best performing balanced fund surveyed by SuperRatings over the 10 years to June returned 7.6% a year against the return from the worst performing fund of 3.5% – an annual performance gap of 4.1%. (These returns are after investment management charges and taxes.)
Members who do not track their fund’s performance could be throwing money away. Don’t put up with sustained underperformance.
Many funds – including NGS Super, Sunsuper, HOSTPLUS, AustralianSuper and First State Super – offer an online service, AppleCheck, from super fund researcher Chant West. This enables you to compare several funds at a time.
AppleCheck provides such information as: performance from one to five years, administration and investment management fees, insurance options and costs, and the quality of administration and member services.
SuperRatings calculates that the average fee charged by super funds for a $50,000 portfolio is $726 a year or 1.45%. (This figure includes administration and investment management charges but generally excludes adviser commissions except where incorporated in administrative fees.)
Again based on a $50,000 portfolio, SuperRatings’ Benchmark Report 2011 lists the average fee for not-for-profit funds at $508 a year (1.02%) against $982 (1.96%) for retail funds. The good news is that average retail fees were more than 2% a year earlier.
Fortunately, a smart fund member can hunt down a much better fee deal. McPhee immediately names the no-frills ING DIRECT Living Super as Australia’s cheapest balanced fund. It charges no administration or investment fees although there is a buy-sell spread.
Fund members should treat high fees as a handicap to their real investment returns. If using a commercial fund, check carefully whether or not adviser fees are incorporated in its charges.
The quality of standard retirement and transition-to-retirement pensions offered by super funds is becoming increasingly important given the rapid ageing of the population. And competition between pension products is becomingly increasingly fierce as funds aim to keep members through their savings and pension phases.
Features to look for in pension include good underlying investment performance, competitive costs, flexibility and ease-of-use, and availability of in-house financial planning advice.
SuperRatings has named HOSTPLUS Pension as its pension of the year with the other finalists being AMP Flexible Super – Retirement, AustralianSuper Pension, BUSSQ Retirement Pension, Catholic Super Pension, Club Plus Allocated Pension, OnePath OneAnswer Frontier Pension, REST Allocated Pension, Russell Private Active Pension and Sunsuper Income Account.
This article first appeared on October 31st, 2012.
