Here are nine strategies to help you choose the best super fund for you and to protect your interests if rolling your super into a new fund:
1. Look at the funds that the experts use
Bresnahan says among the funds selected by his employees – “that I have seen” – industry funds are most favoured. And several other superannuation consultancies confidentially reveal that some of their employees hold their super in industry funds.
2. Take note of a retail fund to watch
Retail funds are showing some signs of fighting back against the force of industry funds; so don’t rule them out.
Both Bresnahan and Dunnin name the just-launched BT Super for Life as a retail fund to really watch. In short, the BT fund is a simple product with few investment choices (highly unusual for a retail fund); low-costs (again highly unusual for a retail fund); easy online accessibility with contributions easily transferred from members’ Westpac Bank account (Westpac owns BT); and with a basic, no-questions-asked, level of insurance.
Bresnahan says the fees of the new BT fund cut right into the territory of industry funds – 0.99% of a member’s super savings is charged each year plus a $5-a-month administration fee.
Dunnin says the fees for the new BT fund “are really designed at the sweet spot” to compete with industry funds. “However, the acid test will be how the fund performs,” he says.
3. Educate yourself about super
This basic knowledge is essential before selecting a super fund. SelectingSuper’s website is packed with information from the fundamental to the complex. This is easily the best site for education about super and about what members should look for when evaluating a fund.
4. Use free fund comparison
Fund researcher Chant West Financial Services usually charges a $55 fee for a service called AppleCheck that allows the public to compare the key features of three super funds at a time. However, some super funds make the service available on their websites for no charge. Such funds include Sunsuper , AustralianSuper and First State Super .
AppleCheck goes to the heart of what should really matter to anyone comparing super funds: investment returns from one to five years (a fund’s longer-term investment performance should be considered by would-be members), investment options, fees for investment management and administration, insurance options and costs, and the quality of fund administration and member services (analysing the funds’ help desks, member education, availability of financial planning, and availability of transition-to retirement pensions).
5. Don’t fall into performance trap
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A big trap when comparing fund performance is not to compare like with like. A common yardstick when comparing the performance of funds is to look at the performance of the fund’s diversified balanced portfolios, as discussed earlier. Try to understand the level of risks involved that may have led to a fund’s out-performance.
6. Don’t pay for investment choices that you won’t use
Dunnin says a fundamental difference between industry funds and retail funds is their levels of complexity. Industry funds have limited investment choices whereas retail funds can have scores. And availability of scores of investment choices really adds to the costs.
7. Don’t pay for financial advice if you won’t use it
Most retail funds have financial planning advice built into their fees. But why pay for it if you want a simple investment product and are not interested in the assistance of a financial planner? It depends on your personal circumstances.
Dunnin says that one reason that few financial planners recommend industry funds is the simplicity of the funds. He believes that financial planners want more complex products, namely retail funds, in order to tailor the products to their clients’ needs.
Certainly, many fund members want financial planning advice and many investment choices. But be aware that retail funds frequently cost twice as much as industry funds because of these factors.
8. Check fund websites
Before finally deciding on a fund, call up the websites on your shortlist. Do you feel comfortable with the sites? Are they easy to use? Do the sites provide quality, easy-to-read information about the basics of super?
Indeed, fund websites can be a great source for explanations of, say, why salary-sacrificed contributions make much sense and how transition-to-retirement pensions operate. (Transition-to-retirement pensions are set to become one of the boom super products and should be of particular interest to SMEs if ownership of the business is moving between generations. These pensions provide access to super savings to those over 55 while they are still in the workforce.)
9. Don’t leave yourself without insurance cover
Members who change funds sometimes fall into the trap of paying more for the same level of death and disability insurance – or even losing their cover for health reasons. In short, members should not leave their existing funds until other arrangements are made elsewhere to obtain satisfactory insurance. (Most members obtain their death and disability insurance through a super fund.)
Here’s a smart tip: Some funds will allow members to keep their existing insurance cover even if all but a small balance of, say, $3000 is rolled over to another fund. Then if satisfactory insurance is gained with your new fund, membership of the old fund can be terminated.