Superannuation choice will be with us sooner rather than later. If we are to ensure that our retirement savings are in the best superannuation fund, good financial advice will be essential.
However, advice on industry or corporate funds may not be so easy to come by.
Tom Collins, principal of Tom Collins Consulting, says planners won't advise on industry funds because the funds do not pay trail commissions to planners.
But Laura Menschik, principal of Millennium Financial Planning, is not so sure.
While those planners who charge initial fees and trail commissions might not be interested in recommending industry funds, she says the same can't be said necessarily of advisers who charge a fee for service or charge by the hour for their advice.
Menschik says she cannot "buy in" the research from one of the managed fund research houses on an industry fund as she can with one of the retail superannuation funds.
She has no way of knowing the industry fund's asset allocation and investment style unless she does the work herself.
However, Menschik says she has checked industry funds on behalf of her clients. If a fund is one of the larger industry funds, the way it invests is usually clear.
But with some smaller funds, she says:
"It can be very hard to get a handle on it, other than a general overview."
The problem with superannuation choice, says Collins, is that there will not be enough safeguards. His fear is that we will see a repeat of the British pension mis-selling scandal. When the British version of superannuation choice was introduced many unethical operators saw it as a fee free-for-all. The result was that people were pulled out of good super funds and put into funds that weren't so good.
Menschik says churning - a practice that sees unethical advisers switching clients out of one fund and into another so that they can earn a commission - will occur when choice arrives.
"If you are a commission-based adviser you will get nothing if you leave [the client] in the industry fund. That is the reality," she says.
But Collins says even fee-for-service advisers have their limitations. "Most advisers only want to talk to people with a lot of money," he says.
So where does this leave smaller investors who simply want good advice on their superannuation?
They need to do some research. It pays to gather as much information about your options as you can - even if you are planning to get expert advice down the track.
Collins says not to worry too much about fund performance in the short term. Instead he says, look at price.
"An annual fee of 1 per cent or 2 per cent can have a big effect over time," he says.
| Advice checklist |
Does the planner have sound reasons for recommending moving from a low-cost industry fund or employer fund into a retail fund or master trust?
Does the planner have research from an independent research house to back the recommendation?
Are you happy with the education, qualifications and experience of your financial planner?
Are you confident that your planner is there for the long haul? Will the planner still be in the financial advisory business in, say, 10 years?
What dealer group is behind the planner?
Do you understand, and are you happy with, how your planner will be paid?
Are you comfortable with the advice you have been given?
Are you happy with the level of ongoing service your adviser will provide?
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But it is equally important to keep fees in perspective. Alex Dunnin, research director at Rainmaker Information Services, says a low-risk type of superannuation fund, called a Retirement Savings Account, may charge little fees, but has little or no performance to match.
"You might be better off in a high fee master trust that is crediting 10 per cent than
a low fee fund with bad performance," he says.
The other important factor, in choosing a fund, is the insurance options the fund offers. Superannuation funds can access death, total- and permanent-disability insurance at low, wholesale rates. Also, the premium is paid with the member's "gross" rather than after-tax dollars, so it effectively receives a tax break by buying insurance through their superannuation fund.
Fees matter
Make no mistake - getting the right advice to ensure your superannuation mix is best for you is important.
Because of the long-term nature of your super investment, even a relatively small difference in after-fees return - say 2 per cent - is going to have a big impact on your final super lump sum.
For instance, using the calculator on Rainmaker's SelectingSuper website (www.selectingsuper.com.au), we can get the results for a 25-year-old earning $40,000 (indexed to increase by 3 per cent each year), and contributing the minimum of 9 per cent to super.
Assuming the super fund had a 5 per cent return after fees, the value of
the super on retirement at age 65 comes to $570,113.
This lump sum will buy an annual pension of $28,505, which is about 21 per cent of the salary at retirement.
But increasing that return by just 2 per cent, the result is a lot less gloomy. This could be achieved by finding a fund with a 1 per cent lower management fee and a 1 per cent higher crediting rate.
The value of the super at age 65 comes to $912,037. This will buy an annual pension
of $45,601, which is about 34 per cent of the salary at retirement.
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