James Kirby: How to avoid the worst super funds

Must you place your superannuation at the mercy of big institutions? The short answer is no.

Some of the more recent products from banks and other financial players outside of low-cost industry funds have been getting more competitive.

Must you place your superannuation at the mercy of big institutions that can fleece you for fees, party with your savings and, at worst, continue to take commissions when you die?

The short answer is no. There are alternatives such as old fashioned annuities or new style products like low cost index based products not to mention self -managed super funds for anyone who is willing to turn their back on the traditional big players in superannuation.

Certainly, some of the more recent products from banks and other financial players outside of low-cost industry funds have been getting more competitive: Products such as ANZ Smart Super, ING Living Super and Virgin Money are regularly scoring well in industry reports: A survey from industry specialist Canstar shows all three of these funds with fees which are well below industry averages.

Unlike traditional balanced funds where the institution had great opportunity to collect fees from simple tasks such as managing cash, some of these new era funds are becoming cheaper by introducing what is called a ‘passive’ investing approach. Passive investing means investor money is placed in index funds or exchange traded funds which simply mirror a market index, as a result the fees to be paid to fund managers are greatly reduced.

Usefully, for superannuation investors price competition has broken out in the passive investment sector with local fund managers such as Betashares or global players such as Vanguard cutting fees to strikingly low levels such as less than one tenth of one per cent.

“Keep your superannuation simple and suitable to your needs, if you don’t really understand investment you shouldn’t have a Self -Managed Super Fund, if you have modest savings and you just want a cheque each month there are simple solutions in super — or annuities — that can do that for you and the whole structure being examined by the Commission becomes less relevant”, says financial adviser Will Hamilton of Hamilton Wealth Management.

Melbourne based adviser Doug Turek of Professional Wealth Ltd adds: “Some of the new products are a lot better than we got in the past from the banks — the index based funds are simple and are designed to have lower fees …. and fees are crucial over the long term investment scenario in superannuation”.

“You have to do some homework, a lot of what we are seeing has come from apathy among investors, “ Turek suggests, “We have large fund managers still charging a percentage of assets under management but fees should have a very valid reason, we still see performance fees based on outperforming indices which are, to be frank, easy to beat.”

Advisers suggest the next area due a competitive shake up is the annuity market, where retirees can simply buy an income — or even an inflation protected income for life: At their best annuities allow a retiree to sidestep the entire issue of exposure to markets and variable fees. For the moment though, competition in the market is extremely limited: Challenger Ltd remains completely dominant with an estimated 90 per cent market in Australia.

Industry analysts also suggest the scandals unfolding in the Royal Commission are largely based at bank-run funds and often relate to small business employees in poorly performing funds who were signed up by employers who rarely updated arrangements once they were signed.

In contrast, large corporations such as ASX- listed top 200 companies will regularly put their superannuation requirements out to tender ensuring employees get up to date deals.