Why your financial planner, feels Industry Super funds are NOT her first choice!
By – Sofie Korac (Prudentia Financial Planning)
The more I research and deal with Industry Super Funds the more I find them not suitable for the majority of clients. Here are my reasons:
- They are not transparent – it is very difficult
to get a thorough understanding of their underlying investments apart from the
general asset allocation. This means it is hard to
compare returns but research that compares apples with apples indicates that wealth
management by financial planners performs better.
- Distorted portfolio labels – most Industry “Balanced”
funds are not actually balanced at all. They tend to be anywhere from 80% to
95% of the portfolio invested in “growth” assets i.e. those assets that can
fluctuate significantly over short time periods such as shares (fluctuations that are used by some as ‘performance’ but that
is not the right way to describe investment outcomes, long term performence is
what is important), property/infrastructure and private equity. They
have very little invested in conservative assets such as Bonds and other fixed
interest investments. Some members will get a shock when the next major market
- Misleading comparisons – comparisons with retail
“Balanced” funds are not valid as most other “Balanced” funds only have 60 to
70% allocated to “growth” assets. It is well documented and researched that the
majority of portfolio returns can be attributed to how much is invested in
“growth” assets. However, more growth assets means more risk. (Reference: The-hudson-report-blog/compare-the-pair)
- Misleading promotions of returns – In February
of this year, Industry super funds were still promoting their returns from the
previous financial year; my research showed they were over-stating their
performance by a significant amount. Performance for Industry funds have fallen
significantly since June 2018.
- Not all Industry Super funds perform well – the
performance of a few large funds hides the chronic underperformance of a
multitude of sub-scale union funds –which explains why every “compare the
pair” union fund campaign uses selective averages which may not compare
apples with apples (Reference: Melinda Howes, GM Superannuation at BT Financial,
Updated Apr 11, 2018 — 3.20pm).
- HostPlus downgraded – In May 2019, independent
research house “Lonsec” downgraded HostPlus Balanced Option due to under-resourcing
and lack of a targeted allocation to traditional defensive assets such as fixed
income and cash, which have historically provided defence and liquidity when
required (Source: Daily Bulletin, 28.05.2019, ResearchBulletin@lonsec.net.au).
- Group insurance through Industry Super funds
are generally inferior to personally held insurance cover – they can change
the insurer, definitions, policy details and default sum insured amounts at any
time even if it is detrimental to the member. The reason for this is that the
insurance contract is with the Industry Fund and not with the individual
member. When you take out an insurance policy directly with the insurer through
an adviser, the law does not allow the insurer to make any changes to your
insurance policy that would result in a detrimental outcome to you, however
they are allowed to make improvements.
- No adviser access or dedicated phone line –
makes it very difficult to do my job efficiently and you can spend up to an
hour on hold.
Internal financial advisers are subsidised by
all members whether they use these services or not and they are limited on what
they can advise; they can only provide recommendations around their own