The median growth fund delivered a return of 10.4% for the 2009/2010 year, and the top-performing super funds for the year were predominantly retail master trusts, according to rating company, Chant West. A ‘median’ return is the return for the super fund in the middle of the list.

In the recent past, industry super funds have outperformed master trusts (retail fund sector) due to industry funds having higher allocations to unlisted assets (and due also to the absence of adviser trailing commissions and upfront commissions). For the 2009/2010 year however, the retail sector takes the honours.

Ignoring the effect of commissions, the retail sector has outperformed the industry fund sector for the 2009/2010 year – purely on investment terms. According to Chant West, master trusts generally have above-average weightings to listed shares and property, and those asset classes were the top-performers last financial year (2009/2010) (see article Super funds deliver 10% for 2009/2010 year for more information on specific asset class performance).

The super funds that didn’t perform as well for the 2009/2010 year had high weightings to unlisted assets, such as unlisted property and infrastructure, says Chant West director, Warren Chant: “These funds suffered a double-whammy, especially in the first half of the financial year. Their unlisted assets were being revalued downwards, and at the same time they were relatively under-exposed to listed shares and property which were rising strongly. That picture changed, especially in the June quarter, but not enough to save them from being towards the lower end of the league table.”

Top 10 performing super funds for 2009/2010 year

The top-performing super funds for the 2009/2010 year are listed in the table below. The performance data is based on Chant West interim figures, and the table ranking is based on individual investment options offered by a superannuation fund, and the investment options involved in the ranking process look after assets worth more than $500 million.

Note: Based on Chant West’s rankings, a growth fund typically holds between 61% and 80% in growth assets such as shares and property. Some super funds may describe this type of asset allocation as a ‘balanced’ investment option, and this type of investment option is the typical default option for super funds (where you don’t actively choose your investment options for your super account).

Source: Chant West, 22 July 2010 media release (www.chantwest.com.au)

*Performance is net of investment fees and taxes. It does not include administration fees or adviser commissions.

Top 10 performing super funds over 5 years – industry funds win

So last year’s top performer can be this year’s dud, and vice versa. What then does this mean for anyone considering whether the super fund they have is the best-performing super fund over the long term?

Warren Chant has some advice for super fund members: “From the member’s point of view, I think the message – now more than ever – is to keep an eye on your fund’s performance regularly, and at least every year. Don’t be too concerned if it underperforms in the short term, but if it consistently underperforms over a few years, try to find out why and maybe look at some alternatives.”

Chant explains that the 2009/2010 year benefited the asset allocations of master trusts because they have a higher allocation to listed shares and property (65%) than industry funds (54%) so they were rewarded when the markets lifted. The master trusts also have a lower allocation to unlisted property, infrastructure and equity (3%) compared to 22% weighting in industry funds, and those sectors performed poorly during the 2009/2010 year.

Chant notes that over the longer term, the strategic asset allocation policies of industry funds have paid off. He says: “In particular, those allocations to unlisted assets have added to performance and reduced volatility, or risk. They do mean slightly higher investment costs, but those extra costs have been more than justified by the added benefits.”

Industry super funds dominate in Chant West’s table for the top 10 performing super funds over 5 years, although a retail fund investment option tops the list – CBA OSF Mix 70 – with an average annual return over 5 years of 5.8%.

Note: The cash rate for the same 5-year period is also 5.8%.

Source: Chant West, 22 July 2010 media release (www.chantwest.com.au)

*Performance is net of investment fees and taxes. It does not include administration fees or adviser commissions. The performance data is based on Chant West interim figures, and the table ranking is based on individual investment options offered by a superannuation fund, and the investment options involved in the ranking process look after assets worth more than $500 million.

Related posts:

1. Super funds deliver 10% for 2009/2010 year
2. Super funds set to celebrate double-digit returns for 2009 calendar year
3. Investment performance: We’re the best super fund. No, we’re the best…

I am not permitted to comment specifically on whether a particular super fund is suitable or not for your personal circumstances, which is why I have removed any reference to the company that runs your super fund. I can however provide some general comments on what makes a good super fund.

The purpose of a superannuation fund is to accumulate wealth for your eventual retirement, which means that you want your super fund to deliver the best return possible (after fees and taxes) taking into the account the risk that you’re willing to take to get there, and any other particular needs that you may have, such as cost-effective insurance coverage.

Comparing super funds in 8 steps

I explain the main issues you need to consider when comparing super funds in the article Comparing super funds in 8 steps . The two most important criteria when deciding whether a super fund is good enough is the super fund’s investment performance, and the fund’s level of fees.

The level of fees are an important consideration when deciding whether a super fund suits your needs, but the most important measure is your fund’s returns after fees and taxes. If your super fund is delivering higher returns than other super funds, or giving you access to investments that you wouldn’t normally be able to access, then the higher fees may or may not be justified.

The management expense ratio (MER) on your account works out to be around 2.2% of your account balance. In general, a super fund that charges substantially more than 1% in fees is considered a high fee super fund. According to rating company, SelectingSuper, if a super fund charges 2% in fees rather than 1% in fees, that 1% difference in fees over 40 years can mean a final retirement balance that is 30% lower, assuming investment returns are the same for both super funds.

Five main types of super funds

Apart from a self-managed super fund (SMSF), you have four types of superannuation funds – industry, retail, corporate or public sector – to choose from, and within these four categories you can choose from a total of 429 super funds (as at June 2010, see Comparing super funds: who’s who in the super zoo). Generally you can only choose between an industry fund, retail fund, or an SMSF, unless you’re already a member of a corporate super fund, or an existing member of a public sector super fund.

Based on the level of fees that you are being charged, I assume you’re in a retail super fund. I explain the fees charged for the different types of super funds in the article FEEding frenzy: super fund fees.

Fees may include adviser commissions

Sometimes it is difficult to unpack the fees that a super fund charges, especially when you are a member of retail super fund. Due to the history of product distribution relating to retail super funds, it is highly likely that a portion of your fees are being redirected to a financial adviser who may have initially provided you with advice. Alternatively, you may be in a super fund that invests predominantly in international assets, or emerging markets, or other types of investments that require more investment specialists or more research overheads, which may then justify 2.2% in fees.

If an individual is in a balanced investment option, then I think being charged 2.2%-plus is over the top, and anyone in this position may consider renegotiating the fee with the organisation, or financial adviser. Note that I am not permitted to comment on the merits of any investment decision.

The level of fees is of course only one consideration when deciding the merits, or otherwise, of a super fund. Again, the most important factor is without doubt the after-tax returns that a super fund delivers over time.

Checking the performance history of your super fund, and comparing this history against comparable super funds may give you some comfort as to the merits of your super fund.

Other useful SuperGuide articles

The following articles also provide some information on this topic:

• Comparing super funds: Check out the cheapest funds
• Comparing super funds in 8 steps
• Comparing your super fund’s performance
• Is my super fund’s performance good enough?

Related posts:

1. Super for beginners, part 13: Why pick one industry super fund over another?
2. Super for beginners, part 4: My son’s super account is bleeding fees
3. FEEding frenzy: super fund fees

Unless you work in the superannuation industry, how the world of super works can be bamboozling (sometimes it can be confusing even when you know the industry well). This article, on the different types of super funds, is the first in a series of articles explaining the main players in the Australian super world.

This article should really be titled ‘The what’s what in the super zoo’ because I’m explaining the different types of super funds available, rather than the people involved.

You may find this difficult to believe but there are only five types of super funds in Australia, and most Australians can only choose from three of these fund types. You can expect to find the following five broad types of super funds:

• Company (or corporate) funds
• Industry funds
• Retail funds (although you may be offered a series of funds via a ‘wrap’)
• Public sector funds
• Small funds (self-managed super funds or small APRA funds. APRA stands for the Australian Prudential Regulation Authority, the main super regulator)

Let’s deal with the big numbers first. Based on statistics released in March 2010, there were 426,955 super funds in Australia as at 31 March 2010, and 422,566 of these super funds were small funds (super funds with fewer than 5 members). Nearly all small funds are self-managed super funds (SMSFs) (422,687, commonly known as DIY super funds, and 3,879 of small funds are small APRA funds.

What this means is that if you considering one of the remaining four categories of super fund – corporate, industry, retail, public sector – then you have only 429 super funds to consider. Okay, that is still a lot of super funds, but if we break it down into the individual categories (see table below), the super world looks a little less daunting.

Source: Extracted from Statistics, Quarterly Superannuation Performance, March 2010 (issued 10 June 2010), Australian Prudential Regulation Authority.

Briefly, the following are the four types of managed superannuation fund:

• Industry fund. An industry fund usually caters for workers from a particular industry but many of them are now available to anyone.
• Company/corporate fund. A company or corporate fund is generally a super fund with membership only open to employees working for that company. You can’t choose a company fund but you may choose to remain in a company fund, if you’re an employee of the company and an existing fund member. Some company funds permit relatives of existing members to join too.
• Public sector fund. A public sector fund is only available to public sector employees and, in some cases, ex-public sector employees. You can’t choose a public sector fund although some of them let you choose to remain a contributing member when you leave the public sector – in these circumstances you may be able to arrange for your new employer to contribute to your public sector fund.
• Retail fund or master trust. Financial institutions such as banks, financial planning groups and fund managers run retail super funds. Anyone can join these types of funds. You may be a member of a retail fund if your employer pays your SG contributions into a corporate master trust. A corporate master trust is just like a master trust for individuals but on a much larger scale.

If you visit a financial adviser you may also hear the terms ‘super wrap’ and ‘master trust’. These two categories generally offer you access to lots of managed fund investments, and fall under the category of ‘retail funds’.

You can also consider opening a Retirement Savings Account (RSA). An RSA is a low-risk and low-return superannuation account provided by banks and other financial organisations. RSAs, however, are more a parking vehicle rather than a long-term investment option. RSAs represent less than 1 per cent of all money invested in the superannuation market.

Note: Unless you’re already a member of a company fund (although some company super funds permit relatives of employees to become members) or a public sector fund, an employee can generally only choose from three types of super funds:

• Industry funds
• Retail funds
• DIY super funds.

I explain the different types of superannuation funds, and how to choose a super fund, in my book Superannuation For Dummies 2nd edition (Wiley).

Related posts:

1. SMSFs lead the super pack, again
2. Exposing the performance history of Australia’s largest 200 super funds
3. Retail funds outperform industry funds in 2009/2010

Individuals running DIY super funds now control 31.8% ($400.2 billion) of the $1.26 trillion invested via Australian superannuation funds. Ten years ago, DIY super funds represented one-tenth (10%) of all superannuation money.

SMSFs lead in market share

The money held in DIY super funds, officially called self-managed super funds (SMSFs) exceeds the super money invested via retail funds (27.9%, $351 billion), industry funds (18%, $227 billion), public sector funds (14.1%, $177 billion) and corporate super funds (4.8%, $61 billion) according to figures released by APRA on 10 June 2010. APRA stands for the Australian Prudential Regulation Authority, the prudential regulator of all super funds, with the exception of DIY super funds, which are regulated by the Australian Tax Office.

SMSFs and industry funds lead in asset growth

All superannuation sectors grew in terms of total assets during the 3 months to March 2010, with the SMSF sector growing by 3.6% in terms of fund assets, and the industry fund sector also growing by 3.6%. The value of assets held in retail super funds grew by 1.6% during the 3 months to March 2010, while public sector funds grew by 2.7% and corporate funds grew by 1.7%.

I explain the five main super fund sectors in the article, Comparing super funds: Who’s who in the super zoo. The article is updated quarterly with the latest statistics on the types of funds and how many super funds of each type are available.

Related posts:

1. Comparing super funds: Who’s who in the super zoo
2. SMSFs: More money for Superannuation Complaints Tribunal
3. Ten handy uses for the APRA200 performance list

Before I answer your question, I just want to flag that low fees are just one element in the long-term performance of a super account, although industry super funds have performed well over the long-term on average, relative to retail super funds. More recently, the performance of industry super funds has suffered due to the generally higher allocation towards unlisted assets, which have not performed so well. Note that each industry super fund does invest differently. I write elsewhere on the site about investment performance so I encourage you to check out our section ‘comparing funds’.

The reason for having different industry super funds for particular industries is really an historical issue.

In the mid-1980s when productivity superannuation (predecessor of the Superannuation Guarantee (SG) system) was first introduced, each industry negotiated awards over time that included 3% productivity super and each award stipulated where that money was to be paid. For example, the building industry has Cbus, the health industry has HESTA (and Health Super), the retail industry has REST, and the list goes on. The original names of these super funds were long-winded but as time has passed and the marketing strategies of these super funds has become more sophisticated, each super fund has shortened the fund name to something that you can remember.

Check insurance cover

Apart from investment performance (see earlier), and recently, different industry funds have had vastly different returns, a particular industry fund may have a different level of insurance premiums (and cover) to another industry fund. The area of insurance is probably going to be where you find the main difference between industry funds. If you can choose your own super fund (see later in article for information on this), then it’s worth shopping around if life insurance and other types of insurance cover are important to you.

Large super funds negotiate group cover on the basis of the profile of its fund membership, and some industries are more dangerous than others which generally means that the premiums on offer will be different, depending on the type of industry. Many industry funds are now offering an ‘office’ or ‘professional’ category for those fund members in low-risk categories.

Can I join any industry fund?

If you have the right to choose your own super fund (for the purposes of your employer’s Superannuation Guarantee contributions), then you can choose any fund you wish, assuming that super fund is open to applications from the general public, and it doesn’t have to be an industry fund. The industry funds sector has a special website that you can visit to find out more information about the different super funds. This link takes you directly to a link for 16 industry funds.

You can also check out the article Comparing super funds in 8 steps to help you with your selection process.

If you don’t have the right to choose the super fund where your employer’s SG contributions are to be paid, then you can choose your own fund for any additional contributions that you may wish to make.

According to the ATO website, you may not have fund choice if your employer pays super on your behalf under one of the following agreements or awards:

• state industrial award
• preserved state agreement
• federal industrial agreement such as an Australian workplace agreement (AWA)
• pre-reform AWA, pre-reform certified agreement, collective agreement
• old IR agreement, individual transitional employment agreement (ITEA)
• workplace determination, or enterprise agreement (these are defined terms in Federal industrial relations law).

If you’re a federal or state public sector employee, then you may not have fund choice.

You can visit Fair Work online for more information.

Related posts:

1. Super for beginners, part 11: Is my super fund good enough?
2. Fund choice: Comparing super funds in 8 steps
3. Four reasons to buy insurance via your super fund

The SSR commissioned a report from Deloitte Actuaries and Consultants on the reasonable and achievable costs for an average member with a $25,000 account balance, assuming the member’s super money was invested via a MySuper account. The MySuper account is the SSR’s latest idea for a new whiz-bang default option for fund members who fail to actively choose an investment option. In other words, 80% of all super fund members (for more information on MySuper, see article THE SOAPBOX: Cooper declares war on retail super funds and financial advisers). For more information on the SSR, see article What the heck is the Super System Review?

Fund costs: what’s considered possible in the future?

According to the Deloitte report, ‘Super System Review: Default Fund costs under the MySuper proposals’, the costs associated with running a super fund can vary depending on the following:

• Scale (size of the fund), both in terms of fund membership and assets under management
• Style of investing: a passive investment approach costs less to manage than an active investment style.
• Asset allocation: some asset classes cost more to invest in than other asset classes. If you have a higher allocation to cash rather than shares, then presumably costs should be lower. For example, a conservative investment allocation generally costs less to manage than a balanced portfolio.
• Alternative investments: Amount invested in higher cost alternative asset classes

The table below summarises the Deloitte report findings on the annual operating cost for a MySuper account with a $25,000 balance. The original table in the report uses basis points (100 basis points equals 1%). I have converted the basis points into a percentage of the $25,000 account balance; for example, 50 basis points is converted into one half of a per cent (0.5%). I have also inserted annual dollar amounts for fund costs into the table to provide a more useful comparison for readers.

Source: Table adapted from original table appearing in report, ‘Super System Review: Default Fund costs under the MySuper proposal, 19 April 2010’, Deloitte Actuaries and Consultants (www.supersystemreview.gov.au)

Super fees: what’s actually happening now?

The Investments and Financial Services Association (IFSA), the lobby group and industry association for the retail funds industry and funds management industry is not that impressed with this MySuper malarkey. (Note that all of the costs quoted in the table above are lower than the average annual fees of a retail super fund – currently around at least 2%).

IFSA issued a media release challenging the MySuper report. IFSA’s chief executive officer, John Brogden states that major superannuation funds already provide superannuation products with low fees. He cites the following examples:

• Colonial First State provides a superannuation product with a passive investment option for the total annual fee of 0.41%
• First State Super provides a diversified investment option with an annual fee of 0.41%
• AMP SuperEasy offers a product at an annual total cost of 0.50%
• SunSuper offers a passive balanced fund option for annual management costs of 0.21% plus an administration fee of $1 a week

Brogden also argues that the cheapest segment of superannuation is government superannuation at an average of 0.69 per cent, large retail funds are second at an average of 0.79 per cent and industry funds come third at 1.07 per cent on average (see table below)

Brogden believes that the recommendations in the Super System Review’s SuperStream report will enable fees to drop without the need to introduce MySuper.

The table below summarises the current league tables in terms of super fund fees, according to IFSA.

Source: Table adapted from original table appearing in ‘Superannuation Fees Report 2008: market segment analysis at 30 June 2008‘, a report produced by Rice Warner Actuaries on behalf of IFSA.

So, what does this all mean for me today?

I receive many questions on super fund fees and my usual response to how much a super fund should charge is… it depends. Seriously, the general view from the rating companies and certain sections of the super industry is: if a fund member is in a default investment option, then paying substantially more than 1% or so in fees is too high.

Of course, you may choose to pay more than 1% if you want to receive financial advice as part of the fee, or you have chosen to invest in an investment option that generally has more expensive running costs, for example, international assets, emerging markets, or alternative assets.

If you’re in a plain vanilla default option, or other type of balanced option, and you’re currently paying more than 1% in fees each year (excluding insurance premiums and super taxes), then it’s probably time to ask your super fund some questions.

For some helpful articles on super fund fees, check out the following SuperGuide articles:

• FEEding frenzy: super fund fees
• Comparing super funds: Check out the cheapest funds
• Cut fees: Combine super accounts
• Super for beginners, part 4: My son’s super account is bleeding fees

Related posts:

1. FEEding frenzy: super fund fees
2. Comparing your super fund’s performance
3. Investment performance: We’re the best super fund. No, we’re the best…

Here’s something old that’s become new. The Super System Review has announced in a preliminary report, ‘MySuper: A super option designed just for members’, that it intends to recommend a no-frills super account for the majority of Australians.

How novel: a generic super account with low fees and minimal bells and whistles is set to become the default option for most Australians. From the mid-1980s until recently, you could access this type of account if you became a member of an industry super fund. In trendy and progressive 2010, it seems we’re calling this type of account, MySuper. You can be certain that the retail super fund industry and the financial advising industry are not happy with this report (more on the implications for the retail sector later in the article).

MySuper is not a done deal

If the planets align, and the Government (and Parliament) eventually say yes to this idea –  remember, we have an election this year and anything can happen –  then what this means for you, is that your super benefits will be placed in the MySuper option within your existing fund, unless you have previously actively chosen your investment options within your super fund.

Don’t worry, or celebrate, just yet: this is a preliminary report of the Super System Review (SSR) linked to Phase One of the review, and a final report will not be delivered to the Government until sometime in June 2010. The Government can then choose to disregard the report, if it so wishes, or bury it for as long as it likes (as the Government has done with the Henry Tax Review report).

Note: Officially, the report ‘MySuper: A super option designed just for members’ was released on 20 April 2010. Although you may have previously read about this report, in vague terms, in the daily newspapers because the Super System Review gave the super industry (but not consumers) a ‘confidential’ sneak peek and every super man and his dog has had a look at the report and gave it a nay or yay, and then happily leaked it to the media.

What is MySuper?

The fireworks features of the no-frills MySuper account are:

• A single investment option
• No contribution fees or trailing commissions
• Access to a default pension option upon retirement
• Lower fees
• Life insurance on an opt-out basis. Possibility of offering income protection and disability insurance cover
• A compulsory intra-fund advice facility for all super funds, enabling fund members to access information and advice directly from the fund trustee. You can read about how intra-fund advice works in our article THE SOAPBOX EXCLUSIVE INTERVIEW: Cheap financial advice now available – what does it mean for consumers?
• Compulsory (for super funds), regular forecasts of what a member’s balance will be on retirement
• More online disclosure rather than hard-copy disclosure of fund information

Single investment option

According to this latest SSR report, the concept of a MySuper account, to be offered by all large super funds, will involve just one investment option, or more precisely “a single, diversified investment strategy designed to suit members as a whole.”

The MySuper option will replace the current default investment option offered by super funds. Note that around 80% of Australian fund members don’t choose investment options, which means their super money is invested via a default investment option. The default investment option is generally a ‘balanced’ or ‘growth’ option.

No contribution fees or trailing commissions

No contribution (entry) fees or trailing commissions can be deducted from a MySuper account.

The only type of super fund that deducts contribution fees (also known as entry fees) and trailing commissions from super accounts are retail super funds. Consequently, the only sector of the superannuation industry that is going to be dramatically affected by this recommendation is the retail super fund sector.

In short, the MySuper recommendation is designed to cut the fat from the retail distribution network. What this also means is that financial advisers won’t be able to take kickbacks in the form of contribution fees and trailing commissions on super accounts where they provide no personal advice. If they do provide personal financial advice, then the SSR recommends that they charge a specific fee for such advice.

The Federal Government, the industry, the regulators and everyone involved in superannuation, including the media, have been particularly slack in redressing this horrendous commission rort. The consumer rip-off has been going on since the introduction of compulsory super, and no one has wanted to tackle the issue, and potentially offend the financial planning industry.

For example, an employer chooses a retail fund on behalf of its employees via a financial adviser. The financial adviser then skims a contribution fee from every compulsory employer super contribution made for every employee who becomes a member of that retail super fund, via that employer, for the life of each of the member’s super account. That’s not all. The financial adviser also takes a trailing commission that’s skimmed from the annual management fee that’s deducted from each member account. This contribution fee is supposed to represent some type of remuneration for financial advice. I understand that very few employees receive this advice for which they pay so much.

You can read an entertaining analysis of this legalised corruption, and similar rorts, in one of the submissions to the Super System Review, from the mysterious ‘Kristof’. Kristof is a pseudonym for an individual employed in the financial services industry, who is also a member of the Financial Planning Asscociation. Kristof has coined the term ‘Superannuation Transaction Commissions’ Click here to access his submission.

Note: The SSR has flagged that the final recommendation regarding the removal of commissions (such as entry/contribution fees and trailing commissions) is likely to apply to all superannuation products and options, rather than only the MySuper option. Expect a lot of noise from the retail sector on this proposal, especially from industry associations, IFSA and FPA.

Default pension option

Recommending that all default super options offer a pension product is inspired policy. This is one area where the super industry has really been dragging its feet – there is a serious lack of affordable and accessible pension products.

The Superannuation Guarantee system has been in place since 1992, and it has really only been in the past five years that industry funds have created pension products for fund members. The alternative is a retail pension product which is feasible if you have a reasonable amount of money, and generally is available if you use an adviser and willing to fork out for commissions. If you’re very lucky, you may be a member of a corporate super fund or public sector fund that gives you a pension option on retirement.

Lower fees

According to the SSR report on MySuper, some super fund members can expect to see a halving of super fees when the following recommendations are implemented:

• removal of contribution fees
• removal of trailing commissions
• streamlining of the back office of super funds (see SSR’s March 2010 report on transforming the antiquated paper-based processing systems of the super industry: SuperStream: A proposal to bring the back office of super into the 21st century)
• some super funds will merge (presumably), leading to lower costs due to due to economies of scale

The Super System Review commissioned a report from Deloitte Actuaries and Consultants examining the costs for a default fund option such as MySuper. I outline the findings of this report in the article Super fees: How much should a super fund charge you?

Background: For more information on the Super System Review, you can read our article What the heck is the Super System Review?, or you can visit the SSR website (www.supersystemreview.com.au), or call the SSR infoline on 1800 425 139.

Related posts:

1. THE SOAPBOX exclusive: Only 14 truly independent financial advisers in Australia
2. Cooper Review: Top 10 recommendations from final report
3. How many financial advisers operate in Australia?

A popular question from SuperGuide readers is: what is the best-performing super fund in Australia?

Using the term ‘best’  is dangerous in any field because it involves some level of personal judgement, and the answer can change frequently depending on what you’re measuring, and when you’re making the assessment. Usually, there are a bunch of top-performing super funds over time rather than one particular super fund.

The answer to this popular question also depends on what timeframe you’re looking at, what type of returns you’re comparing (after fees and taxes, or gross), and what type of investment option (or asset allocation) you have chosen for your super money.

A more relevant question is: what super fund is the most appropriate super fund (or investment option) for my retirement needs?

The original question then needs to be divided into two parts:

• how does the super world measure the best-performing super fund?
• how do you measure fund performance in relation to your own circumstances?

The first part of the question I answer below, and the second part of the question I answer in the article Super for beginners, part 11: Is my super fund good enough?

The award for the best super fund, according to…

This section lists selected performance rankings from the following organisations:

• SuperRatings
• SelectingSuper
• Chant West
• Australian Prudential Regulation Authority (APRA)
• Australian Securities and Investments Commission (ASIC)

Every month, quarter or 12 months, you’re likely to read about the best-performing super funds, the best value super funds or the best super fund over the long term (long term meaning anything from 3, 5 7 or 10 years) in the daily newspapers.

Around 80% of all Australians with superannuation accounts have their money invested in the default investment option of super funds. The default investment option is usually a ‘balanced’ or a ‘growth’ investment option.  The lists that you see in the newspapers usually rank the ‘balanced’  or ‘growth’ investment options of super funds because that is where most Australians have their super money. Most of the lists in this article rank the ‘balanced’ or ‘growth’ options.

SuperRatings performance tables

When assessing the investment returns of super funds, the process is more effective if you have a benchmark available to compare how well the top super funds have performed against the average, and to compare the average and the top-performing funds, against your own super fund’s returns.

SuperRatings regularly provides median returns for the different asset allocations – High Growth, Growth, Balanced, Conservative Balanced, Capital Stable, Secure, Australian Shares, International Shares. The returns are based on the median returns of the largest 50 (SR50 Index) or largest 25 (SR25 Index) super funds that SuperRatings review. A median is simply choosing the return for the fund in the middle of the list. According to SuperRatings, the SR50 Index and the SR25 Index are a “good guide to the actual return of the ‘average’ fund over the same time frames”.

SuperRatings – median returns for main investment options

Past performance is not a reliable indicator of future performance.

Source: SuperRatings. Visit the website for more information on the different indices.

SuperRatings – Top 10 ‘balanced’  super funds over 3 years

According to SuperRatings, the top 10 super funds based on the ‘balanced’ option (investment options with between 60% and 76% in growth-style assets) over 3-year period ending 28 February 2010 are:

Past performance is not a reliable indicator of future performance.

Source: SuperRatings

If you have actively chosen an investment option, then your super money may not be in a balanced investment option. You will need to do a little more research to uncover the performance data for super funds that have invested in a similar asset allocation to yourself.

SuperRatings provide performance data (free of charge) on 450 super funds and pension funds. The latest reports cover performance over 1, 3, 5 and 7 years as at 31 December 2009. You can access the SuperRatings Super Performance List and the Pension Performance List by visiting the SuperRatings website (www.superratings.com.au)

SelectingSuper performance tables

SelectingSuper also produces benchmark indices that you can use to compare how well the top super funds have performed against the average, and to compare the average and the top-performing funds, against your own super fund’s returns. At the time of writing, the latest returns reported by SelectingSuper for the different asset allocations – 5 investment options and 8 asset classes – were as at 31 January 2010 (click here). SelectingSuper provides benchmark returns for both superannuation funds and retirement funds.

You can learn more about SelectingSuper’s top 50 default investment options (usually balanced or growth) over a 3-year period, as at 31 January 2010 by clicking here . Note that the actual ranking is based on the 3-year performance of the super funds listed, although you can track the performance of each of the 50 super options over 1, 3, 5, 7 or 10 years as well.

SelectingSuper provides the top 50 super funds for other investment options as well. Click here to access the SelectingSuper performance tables.

Chant West performance tables

Chant West produces slightly different benchmark indices compared with SelectingSuper and SuperRatings. Chant West provides benchmark median returns for five investment options -All Growth, High Growth, Growth, Balanced Growth, Conservative Growth.

Chant West – median performance for main investment options

Note: Table 1 compares the median performance for each category in Chant West’s multi-manager performance survey, ranging from All Growth to Conservative Growth. Performance is shown net of investment fees and tax. It does not include administration fees or adviser commissions.

Source: Chant West

Chant West – median performance of industry funds and master trusts

According to the performance figures produced by Chant West, master trusts (retail funds) outperformed industry funds by 5.4% over the 12 months to 31 January 2010 (see Table 2). Over a 10-year period however, industry funds have outperformed master trusts by 1.2% each year.

Note: Performance is shown net of investment fees and tax. It does not include administration fees or adviser commissions.

Source: Chant West

APRA takes whole-of-fund approach

The performance tables issued by the Australian Prudential Regulation Authority (APRA) have had mixed reviews, with particular criticism coming from the retail fund sector. I believe the APRA tables are still an excellent resource for consumers (see article Ten handy uses for the APRA 200 Performance list).

The latest APRA tables (released on 24 March 2010 and re-issued on 30 March 2010), summarise the performance of Australia’s 200 largest super funds for the 12 months ending 30 June 2009, for the 3-year period ending 30 June 2009, for the 5-year period ending 30 June 2009, and for each of the previous six years. The APRA tables also include super funds paying pensions.

You can check out the tables yourself by clicking on this link.

Australian Securities and Investments Commission (ASIC)

As a tool for comparing the investment performance of your super fund against the market average, ASIC provides a summary of long-term investment returns (over 5-year and 10-year periods) for four different investment options – growth, balanced, capital stable and capital guaranteed.

According to ASIC, the four investment options represent the following asset allocations:

• ‘Growth’ invests 70% to 80% in shares or property.
• ‘Balanced’ invests 60% up to 70% in shares or property, with the balance invested in fixed interest and cash.
• ‘Capital stable’ invests 60-70% in fixed interest and cash, with the balance invested in shares or property.
• ‘Capital guaranteed’ invests 100% in deposits with Australian deposit taking institutions or in a capital guaranteed life insurance policy.

At the time of writing, ASIC’s summary table only had figures up to 30 June 2008, which are close to useless for anyone wanting to compare their super fund against the average long-term performance of other super funds. Even so, you can check out the summary tables by clicking here. Data for the ASIC tables is supplied by Morningstar, SelectingSuper and SuperRatings.

Related posts:

1. Is my super fund’s investment performance good enough?
2. Comparing your super fund’s performance
3. Mirror, mirror… what super fund is the best-performing fund of all?

Costs become more noticeable in a low return environment but high fees have an impact on super fund accounts in strong markets as well. You can have two super funds earning the same investment returns over a 30-year period, but one fund, let’s call it Fund A, charges 1% in fees while the other fund, Fund B, charges 2% in fees. This difference in fees can mean that the member account in Fund B will end up with a final benefit that is 20% smaller than a similar account in Fund A. For example, it could mean $320,000 in super rather than $400,000 in super, or say, $640,000 in super rather than $800,000 in super — an extra $160,000 in retirement can mean the difference between a reasonable, and a very comfortable retirement.

Calculating your fund’s fees

Your super fund is required to provide a warning in its product disclosure statement (PDS) about the impact of fees on your account’s long-term returns. Further, every super fund (except self-managed super funds) must include a fee comparison table in the fund’s PDS, which explains how much it costs to be a member of the fund. The comparison table is based on a fund’s balanced investment option, which is generally the default option for most super funds.

The comparison table must provide contribution fees (payable to commission-based advisers) and management costs in percentage terms, and also in dollar terms via an example. The example must illustrate the dollar cost of fees if you had a $50,000 account and made $5,000 a year in super contributions.

Your member statement —  the summary statement you receive from your fund each year —  must also disclose all the fees and other costs that affect your super account during the year. Your member statement must set out a ‘total fees’ amount, which represents the total amount of fees and charges that affected your account during the year.

For example, if your fund charges ‘total fees’ each year representing 2% of your balance, your fund has to earn at least 2% per cent to cover the fees. If inflation is running at 4 per cent each year, your fund has to earn more than 6% before it delivers a real return after fees. A real return is the fund’s return after taking into account the effects of inflation. Taking this example to its logical conclusion, if your target real return after fees is 7%, then your super account needs to deliver a 13% gross return (before fees and inflation) in order to deliver a 7% real return after fees.

Shopping for the best deal

The Investment and Financial Services Association (IFSA) and Rice Warner Actuaries released its latest Superannuation Fees Report in December 2008, providing Australians with a useful reference tool when comparing the costs of super funds. Note the expense rates appearing in the table below are average costs, and the fees charged by individual super funds may differ.

The table can be used as follows: say you have $50,000 in your super account. As a member of a corporate super fund you may be paying, on average, 0.73% of your account balance in the form of fees each year, which works out to be $365 on a $50,000 account balance. If your account balance is $10,000, your annual fees would be $73, or $730 if your account balance is $100,000. If your super is in a retail fund, you may be paying on average, 2% of your account balance in fees. On a $50,000 account, that works out to be $1,000 or $2,000 on a $100,000 account balance.

*Excludes employer plans with less than $5 million in assets

**Employer plans with less than $5 million in assets

Source: ‘Superannuation Fees Report: December 2008. Prepared by RiceWarner Actuaries for Investments and Financial Services Association (www.ifsa.com.au).

DIY super and wraps

If you are running your super fund, or considering running your own fund, then you need to take into account set-up costs, running costs including buying and selling costs, and any advice you may need when investing and complying with the super rules. Many of the costs are fixed costs which means the size of your account balance is very important. Buying and selling costs are variable costs so the more trading that your fund does, the higher your brokerage costs will be.

A wrap, also known as a platform, may suit some individuals who want to have control over their superannuation investments but don’t want the hassle of worrying about compliance. The costs of wraps, also known as platforms, can vary widely but if you are dealing with a fee-based adviser who rebates any commissions, then, depending on the size of your account, a wrap can compare favourably cost-wise with a DIY super fund.

Related posts:

1. Super fees: how much should a fund charge you?
2. Super for beginners, part 11: Is my super fund good enough?
3. Investment performance: We’re the best super fund. No, we’re the best…

Trish’s response: I am often asked to provide names of financial advisers for individuals seeking financial advice, and unfortunately I am not permitted to provide recommendations of this nature.

Eventually, we hope to have a list of all ‘fee-based (or retainer) only and independent’ advisers but we don’t yet have the resources to undertake this project. This list will NOT include any advisers who retain the option of accepting commissions on wraps/platforms, or who retain the option of being paid via commissions on investment and superannuation products (with the possible exception of any commissions on life insurance products or mortgage financing arrangements, due to the transactional nature of those products). This list will NOT include any financial adviser employed by a financial organisation that also sells investment products, especially employed advisers who receives bonuses for recommending in-house products over other investment products offered by other organisations. In some circumstances, due to the structure of the financial advising industry, a financial adviser has no choice but to accept commissions from product providers. Advisers in this category will only be included in the list, if they full rebate those commissions to clients.

Note: The Australian Securities and Investments Commission (ASIC) provides some information on how to choose an adviser although I believe ASIC should already be providing a list of independent and fee-based advisers, or seriously considering such a service for investors. ASIC also suggests that you contact the Financial Planning Association but I have not been that impressed with the FPA’s position on removing commission-based advice, so although individual advisers who belong to the FPA may be independent, the FPA has not shown leadership in this area.

Recently, I received an email exchange from a financial adviser who had read a comment in one of my articles about the difficulty in finding an independent adviser. He mentioned that he was an independent adviser. I asked him how an Australian, seeking a financial adviser, can really know whether a financial adviser is independent, and how a person can actually find such an adviser. What David had to say makes very interesting reading. This is what he wrote:

I’ll make no bones about it, it is nigh on impossible given the industry is structurally corrupt and 80% of advisers are licensed or directly aligned with a product manufacturer or institution with a fair proportion of the balance just being glorified ticket clippers, so the odds of the poor old consumer finding independent, impartial advice is low. 

Some will say being independent is a state of mind and about ethics which to a certain extent is absolutely true, but at the end of the day it’s the business model that drives behaviour so unless this is structured to ensure a ‘client first’ principle, consumers are always going to find it difficult. 

If someone is looking for a ‘truly’ independent adviser, the sort of questions I would ask would include: 

• Does the adviser receives a commission [initial or trail] or fee from a third party for any advice or products they provide the client? If they do, they are not considered to be independent as philosophically you can get paid from a third party on the one hand and claim to be independent on the other.
• Is the adviser licensed or aligned with a product manufacturer or institution in any way? If they are, then no matter how many other products they may be authorised to provide advice on, they are not independent and there will be incentives in place to encourage the adviser to sell the manufacturers products over the others and know amount of disclosure makes this right for the client.
• Does the adviser charge a fee based on the size of the client assets? This is typically referred to as ‘fee for service’ but the reality is just a commission by another name.
• Does the adviser receive equity, options or other incentives from their licensee depending on revenue they generate? If they do, they are not independent.
• Does the adviser’s FSG (financial services guide) disclose a conflict of interest? If it does they are not independent.

How do you know if the adviser is telling the truth about being truly independent? 

If the fee section of the advisers FSG is more than half an A4 page long, the probability that the adviser is bending the truth is high. 

The fee section of an independent adviser’s FSG would say something like….. 

• We charge time and materials or an agreed fixed fee to provide the initial strategic advice, the implementation of that advice and the periodical review of that advice.
• Before undertaking the work, we will quote you fee based on the complexity of the work involved.
• Where a product is used [regardless of what type of product it is], we will rebate 100% of the commissions back to you.
• We have no ownership links to financial institutions or financial product providers.
• We have no conflicts of interest to declare.
• All employees are paid a salary and do not receive product commissions, brokerages or volume rebates.
• While we welcome referrals, we do not provide any incentive payment to the referring party nor do we receive any payment from other professional firms to whom we refer our clients.

 The fee section took 7 lines but sadly many take several [if not seven] pages.

You may also be interested in reading the following articles:

• To DIY or not to DIY
• Is DIY super right for you?
• Getting real super advice
• Cheap financial advice now available: what does it mean for consumers?
• Six dangers when seeking super fund advice

If you’re seeking an independent resource on DIY super (including working out whether it’s the right option for you), then you may want to consider my book, DIY Super For Dummies (Wiley). You can find more information on the book, and how to order it, by clicking here.

Related posts:

1. Financial advice for less than $500? You’re dreaming.
2. Six dangers when seeking super fund advice
3. How many financial advisers operate in Australia?

I think the level of criticism is a bit unfair. Sure, the performance data only relates to financial years up to 30 June 2008, which means the devastating 2008/2009 year is not reflected in the performance figures, but the release of the APRA data is at least a start, and will lead to the regular reporting of official performance figures. I am certain the APRA data will be improved and expanded over time.

I have chosen to call the APRA data, the APRA200 list. A major criticism of the APRA200 list, centres around the fact that many super funds offer more than one investment option. Since the APRA200 list only shows returns based on total fund assets rather than returns for the different investment options within the super fund (see Exposing the performance history of Australia’s largest 200 super funds), the assertion from many in the industry is that this fund level data is consequently misleading for super fund members, and irrelevant.

The APRA200 list is not perfect but nor is the information supplied by the super funds. If the industry wants something better than the existing APRA200 list then help APRA produce better tables by working with APRA to provide more comprehensive information on fund investment options.

In the meantime, here are 10 handy uses for the APRA200 performance list.

1. Largest 200. You now have a list of Australia’s largest 200 funds. The largest 200 super funds hold 98% of all money held in APRA-regulated super funds, which means the remaining 200-odd super funds regulated by APRA hold the remaining 2% of assets (see Comparing super funds: Who’s who in the super zoo . Note that exempt public sector schemes are not included in this data. Self-managed super funds are not included in these figures either, although SMSFs hold a massive one-third of all superannuation assets).
2. Default investment options. If a super fund in the list has 100% of its money invested in a default option, or the majority of the fund’s super money invested in a default option, then the return published by APRA generally reflects the true performance of that fund.
3. Number of investment options. The APRA200 list enables you to find out which funds offer more than one investment option, and how many investment options they offer. For example, Bookmakers Superannuation Fund offers one investment option, while Avenue Superannuation Plan (offered by Macquarie) offers 2,432 investment options!
4. More investment choice, more fees? Here’s a tip. The more investment options a super fund offers, the more likely that the fees of that super fund are higher. Sometimes however, a super fund surprises you and keeps the fees low even with a huge offering of investment options. Retail super funds generally offer the most investment options.
5. Types of super funds. You can discover whether a super fund in the APRA200 list is classified as a retail, industry, corporate or public sector fund. For more information on the types of super funds check out the article Comparing super funds: who’s who in the super zoo.
6. The $10 billion club. You can find out how many of the 200 super funds hold more than $10 billion in assets, which gives them negotiating power with service providers and may mean lower fees. Note that I state ‘may’ mean lower fees. If you’re curious, I counted 17 super funds with more than $10 billion in assets, and many more with $3 billion-plus in assets.
7. Fund members. You can find out how many fund members each of the 200 super funds look after. For example, the smallest fund membership award goes to Avenue Superannuation Plan with 800 members, while the largest fund membership of 2.6 million members is with AMP Superannuation Savings Trust. Note that Avenue Superannuation Plan is the super fund with 2,432 investment options (see point 3) although the fund only has $200 million under management servicing 800 members.
8. Compare your fund. You can compare the profile of your existing super fund with the super funds in this list.
9. Find lost super. You can find a list of eligible rollover funds on page 10 of the PDF APRA report. This handy list, and the main list containing Australia’s largest 200 funds can help individuals locate stray super accounts. Use ATO’s SuperSeeker, in conjunction with contacting your old super funds, to help you consolidate super monies.
10. Check out performance data. Okay, the data is not totally current and the figures don’t always reflect the performance of individual investment options but the APRA report is still an interesting read.

You can check out the APRA200 list by clicking this link.

Related posts:

1. Exposing the performance history of Australia’s largest 200 super funds
2. Investment performance: We’re the best super fund. No, we’re the best…
3. Comparing your super fund’s performance

If you know the name of your super fund then everything in super becomes a lot easier.

Next question: how do you find out the name of your super fund?

1. Ask your employer, or even your fellow workers
2. Check documents that your super fund sends to you
3. What about the industry fund for your industry or trade?
4. Could you belong to more than one super fund?

It’s a good idea to check that your super fund has your current address too.

How it works:

Bridgette is 23 and has just finished her first year as a qualified nurse. She wants to know how much money she has in her super fund. The problem is that Bridgette doesn’t know the name of her super fund: all she can remember is filling in a lot of employment forms when she started work. Most of her nursing colleagues belong to industry funds, HESTA or HealthSuper. She recalls receiving some documents from HESTA and her employer confirms contributions are paid into HESTA super fund.

Extract from Trish Power’s book, How to make $300,000 without trying! (30 ways to save your super) (Wilkinson Publishing) ($7.95). Reproduced with permission.

Related posts:

1. Super for beginners, part 13: Why pick one industry super fund over another?
2. Comparing super funds: Who’s who in the super zoo
3. Super for beginners, part 11: Is my super fund good enough?