The rise and rise of Industry Super Funds

As published on the Shadforth Financial Group blog which can be found, along with my personal profile here.

Let’s face it, we live in a world where most people are increasingly ‘time poor’ and, as a result, we find ourselves looking for quick and easy solutions to our problems and everyday situations. For many people, thinking about their superannuation often gets relegated to the ‘too hard basket’ and, over the years, industry super funds have really benefited from this.

With high impact advertising keeping them front of mind, their low costs and their access to basic investment markets, industry super funds look attractive and can certainly add value for the right person. Having said that, you really need to do your homework, after all we’re talking about money which needs to last you throughout your retirement. Here are my thoughts on some of the points you should consider before you decide if an industry super fund is right for you.

You get what you pay for

Industry super funds are cheap for a reason. They offer a very basic level of service. For example, if you need assistance you will generally be calling a call centre - hopefully in Australia but not always - and almost certainly you will be speaking to a different person each time. If you’re in your teens or 20’s, this may not be an issue, but as you get older and superannuation becomes more of a priority, it can become a problem.

Bottom line return

Given many industry super funds invest in unlisted assets as well as other less common asset classes such as commodities, risks and returns may be quite different from more traditional asset assets such as listed equities. Consider this, in 2012 the Australian Prudential Regulation Authority (APRA) conducted a survey of the 200 largest superannuation funds in Australia and found that only 159 of these funds had at least 9 years worth of investment history – i.e. the other 41 funds are no longer in existence. What’s more staggering is of those remaining 159 funds; approximately 75% under-performed the market index, and this includes some of the big names.

Investment strategies

Typically investment options are limited and based around some broad asset allocations such as ‘conservative’, ‘balanced’ or ‘growth’. This can hinder your ability to select investment options to help you meet your personal goals and can make it almost impossible to build a portfolio tailored to your needs. Furthermore, the 'default' investment option in many cases can be quite aggressive as shown below:

In addition to this, industry funds must choose when to re-value their unlisted assets such as ‘infrastructure’ and ‘direct property’. This means that if the market value of these assets drop, the unit price of your investment options may not reflect the actual value of the fund assets, thus potentially resulting in an inaccurate return estimate and/or an overstatement of the financial position of your super fund account.

Lessons to be learnt

Just because something is cheaper, or is advertised on television, doesn’t mean that it is the right thing for you. Everybody’s situation is different and my advice, when it comes to looking after your retirement nest egg, is to start by considering your overall financial and lifestyle objectives which will then drive your investment strategy. Whatever product is required to help you achieve your end goal should always be the final piece of the puzzle. So for you, this may be an industry super fund but, then again, it also might not be!