Prime Minister Kevin Rudd went before a live television audience of ordinary Australians recently to reassure them the Government was doing everything it could to minimise the impact of the global financial turmoil. Afterwards, he said the first thing he had learned from the audience was how worried people were about their superannuation.

"Balanced" investment options, where most people have their super, have lost about 12.5 per cent for the year to September 30, says Warren Chant, co-founder of super fund researcher Chant West.

It is not such a problem for those with plenty of time before retirement but for those close to it or living off savings, there is less time to make good the losses and ride out the markets' troughs.

Chant says at times like this, when account balances are in the red, fund members should be reassessing whether their fund manager, or their fund's investment option, is still the most appropriate for them.

Distressed by heavy losses, people are also more likely to be thinking of getting financial advice. However, members can do quite a few things to help themselves by being better informed.

For a start, you can check on the performance of your fund and establish how it compares with others. All funds have been hit by falling sharemarkets and unless you are in cash and-or fixed interest, you will have suffered significant losses.

You should only contemplate changing funds if, on a like-for-like comparison, it performed poorly. For those who want financial advice, it's important to tread carefully.

While most financial planners do a good job, the industry is riddled with conflicts of interest and most planners get paid by commission.

This is a payment taken out of the investors' capital by the fund manager and paid to the planner on an upfront basis. The planner also gets ongoing commissions even if he or she has no further contact with the member.

High cost of commissions

The Industry Funds Network (an umbrella body for industry funds) has been running a campaign on how commissions are proving costly for fund members. Industry funds are mutuals with member representation among the trustees. Most are open to the public.

The campaign features the former governor of the Reserve Bank, Bernie Fraser, saying: "Now more than ever, you're better off with an industry fund." Not only have industry funds achieved better investment performance, he says, they have lower average fees and "don't pay commissions to financial advisers".

In the past five years industry funds have averaged returns of more than 10 per cent a year. Fraser says $100,000 in an average retail master trust or retail fund in mid-2003 would be worth $152,248 at June this year. The same $100,000 in an average industry super fund would be worth $166,479.

Many industry fund members are unaware Industry Funds Network has a financial planning arm, Industry Funds Financial Planning, which offers low-fee advice to them and their families.

IFFP's 70 financial planners are licensed to give advice on all financial, super and related matters.

The big point of difference is the way they get paid: by fees-for-service only. Any commission received from fund managers is rebated into the member's account.

Conflict free

Some small planning firms see the writing on the wall for commissions. Peter Johnson, executive director of the Association of Independently Owned Financial Planners, recently circulated a discussion paper at the association's annual conference where he said the "culture of advisers placing clients' monies with manufacturers [such as fund managers] and then getting paid a commission has to change".

"It creates a fundamental conflict of interest," he says. "The perception is that we are directing client monies to manufacturers who pay the most."

Frank Gayton, national practice manager with Industry Funds Financial Planning, says industry funds aren't against financial advice. Rather, the argument is over how advice is paid for and that it should be in the best interests of members and free from conflicts of interest.

"The fact is, a retail financial planner gets paid depending on how much business they write and some products pay more than others," he says.

That raises the question whether industry fund advisers are restricted to recommending industry funds only.

Gayton says there are about 40 products on the approved product list.

"Mostly they are industry funds but there are a couple of retail funds," he says.

Gayton says Perpetual and Zurich are on that list. Their allocated pensions have been investigated and they are reasonably priced with a good range of options, he says.

He believes there is a big role for retail financial planners but they have to be more transparent and "clean up their act".

"They have to get into the 21st century and realise that fee-for-service is the future," Gayton says.

Question of quality

The deputy chief executive of the Financial Planning Association of Australia, Deen Sanders, says the association is not in the business of defending commissions or fee-for-service business models.

"Consumers should find an advice provider that suits their payment preferences," Sanders says.

Asked if he believes the payment system has no bearing on the quality of advice, Sanders says: "Absolutely. The quality of advice is measured in the advice providers' professionalism, not in how they get paid."

He says the process is about more than just product selection. A good planner can help with better cash and debt management, accessing support from government benefits and educating people to better understand financial markets and gain control of their finances.

Tools

For those who want to check their fund's performance and learn more about super, several researchers make their information available online. They provide reports that compare investment performance, fees, insurance and other benefits.

SuperRatings (superratings.com.au) and Chant West (www.chantwest.com.au) offer reports on funds and have funds' performances on their websites.

Chant West's AppleCheck report compares up to three funds. The report costs $55 but is available free to anyone who goes to one of 12 industry super fund websites, including AustralianSuper, Host Plus and Sunsuper and public sector fund First State Super.

One of the funds being compared must be the industry fund of the website through which the consumer is accessing the report but the other two funds can be any fund that is covered by Chant West.

Chant says consumers worried about their super should first of all check their fund's performance to see if it is meeting the stated performance objective.

Most people are invested in their fund's default option, which is where they are placed if they do not exercise super choice. Default options spread the money between the major asset classes. They strike a balance between risk and return that suits the majority of people.

He says the typical default or balanced option is down about 12.5 per cent for the year to September. This negative return should be put into perspective. For the past five years the average annual return on the default option is about 9 per cent.

"Over the long-term you are expecting a balanced fund to earn between 7 per cent and 8 per cent," Chant says.

Investment options

How you respond to the current upheaval will depend on your age and how much time you have left in the work force. Younger people have time to ride out the tough times but Chant says older workers and retirees living off their retirement savings have to make some decision about the current turmoil.

Older people should check whether they really want to be in the default option. Chant says those in their 60s and 70s should be moving into less risky options - those with greater exposure to fixed interest and cash and less to shares.

"Most older people do not have much chance of replacing lost capital," he says.

But the timing of the switch to a more conservative option can be tricky.

Chant says they may be better off waiting for six months or so to see whether the market rebounds before switching to a more conservative option.

Switching funds

If your fund has been performing badly, there may be a case to move. But an important consideration before moving funds is to check on the level of death and disability cover and how much it will cost.

"For a lot of people that is the prime consideration", Chant says. "When people switch funds they have to check first whether they can get the level of cover they want."

Chant says for those in poor health, insurance may be a prime consideration.

The new fund may require the member to undergo a medical exam and insurance may be more expensive or not offered at all.

Speak to your fund

Members should take advantage of the the advisory service provided by their existing fund, Chant says.

"Most Australians are in an industry fund, public sector fund or a big corporate fund and pretty much all of them have their own in-house capability or they will direct you to their preferred advisory groups," he says.

He says many offer limited financial advice such as switching between investment options, salary sacrificing and insurance.

If fund members wish to go beyond the limited advice, it will cost them but in many cases it will be no more than a couple of hundred dollars. A full financial plan will cost at least $2000.

Chant says good advice can be found in all business models but "we think the business model that best supports impartial advice is fee-for-service".

For whose profit?

The Australian Prudential Regulation Authority released a study recently that backs the claims made by Industry Funds Network that industry funds do better than retail funds over the longer term.

It shows that the difference between net performance of retail funds and non-profit-making funds comes down to the higher fees of the retail funds, especially commissions paid to financial planners.

APRA reviewed 90 large funds over five years to June 30, 2006. After taking into account the higher fees of the retail funds - which included commissions paid to financial advisers - returns for corporate, industry and public pension funds were about 6.2 per cent compared with retail funds' 5.3 per cent.

"Retail fund expenses, explicit and embedded, lower the net earnings of the retail sector relative to the non-profit-making sector," the study concludes.

Of course, these findings are only averages and individual fund performances can vary greatly.

Some industry funds are underperformers although the industry fund sector, overall, has achieved good long-term performance.

DEFAULT OPTION $10,000 INVESTED IN 1998 NOW $18,300                     
1998-99                         8.2
1999-00                         11.2
2000-01                         5.6
2001-02                         -3.1
2002-03                         0.1
2003-04                         13.2 
2004-05                         13.1
2005-06                 14.5
2006-07                         15.7
2007-08                  -6.4
SOURCE: SUPERRATINGS