Industry funds and the value of advice
If you’ve been watching television over the last couple of years you’ve probably come across industry fund advertisements comparing the performance of industry and retail superannuation funds. These ads suggest that investing your money in an industry fund results in greater returns than investing in a fund that pays commission to an adviser. But these ads don’t necessarily tell the whole story.
Based on data from SuperRatings, opponents of the ads have suggested that the difference between the returns of super funds has less to do with fees and more to do with asset allocation.
In general, industry funds have been overweight in property and underweight in international shares. This assisted the returns of industry funds over recent times but over the long term it’s better to remain as diversified as possible.
When comparing super funds there are a lot of important factors to consider such as where you are investing your money, how much you need for retirement, how much protection your fund provides, and estate planning issues. While it’s true investing in an industry fund may save you money on advisers’ commissions, it also means you miss out on the value of advice.
When it comes to super, it’s important to choose a fund that suits all your personal needs. A financial adviser will consider things like how averse you are to risk and how soon you want to retire, and then find investment options to suit you.
According to a report by Chant West in 2005, the average industry super fund had 12 options compared to 175 for retail master trusts. More choice means greater flexibility, and the ability to tailor a portfolio to suit you.
Research shows achieving the lifestyle you want takes a lot more than just contributing the compulsory 9% into super. So apart from choosing a suitable fund, a financial adviser can also suggest strategies to get your super working harder for you.
Super is always changing, and presenting new opportunities for people who are on the ball. Professional advice can help you take advantage of these. And of course, superannuation is only one part of a financial plan. A financial adviser can also add value in other aspects of your financial life such as protection and estate planning.
Insurance premiums vary from fund to fund so it’s a good idea to consider the level of cover you get from your super fund for the amount you pay.
A 2003 Chant West Report showed corporate super funds provided more than double the amount of protection of industry funds.
Insurance is tax-deductible when you buy it through your super, so choosing a fund with a good level of cover could save you quite a bit of money.
And don’t forget estate planning. While some funds allow you to make a binding nomination, others do not. A binding nomination allows you and not the super fund to have the final say over who receives your benefit.
Super is one of your biggest assets so certainty over who will get your benefit is important.
Like any professional service, advisers charge a fee for the value they provide. Traditionally, this has been paid to them via initial and ongoing commissions from fund providers. But these days many advisers offer the choice of refunding commission and charging a fee for service instead.
At RetireInvest we believe the payment method is up to you and your adviser to work out together, but whatever the payment method, it will be outlined in your statement of advice so there are no hidden extras.
For more information on comparing super funds visit www.chantwest.com