ERFs caned for poor performance, high fees

Only one of 14 registered eligible rollover funds (ERFs) – the AUSfund – has combined good investment performance with low fees, according to new research by two super consultancy firms.

AUSfund (Australia’s Unclaimed Super Fund) has produced a net benefit to members of 7 per cent in the five years to June last, according to the Heron Partnership. This compares with less than 4 per cent by the next best and less than 3 per cent by the third-rated fund. The research was commissioned by AUSfund and the comparative funds are not named. However, Wendy Barton, an executive director of Heron Partnership, said yesterday: “Never before in our product assessments have we seen such a wide variance between the highest-rated product and the rest of the market.” Super funds transfer account balances to an ERF when they lose contact with a member. The ATO collects unclaimed balances of less than $1,000. Garry Weaven, the executive chair of Industry Fund Services and chair of AUSfund, which is owned by a group of industry funds, said: “It is difficult to see how superannuation fund trustees who are legally accountable to act in the interests of fund members can justify transferring accounts to such high fee and chronically under-performing funds when AUSfund is such a clearly superior alternative.” And in separate research, SuperRatings has studied 15 ERFs and rated eight of them. The highest rating, a platinum rating, went to AUSfund, and next highest, a gold rating, to ISPF ERF. SuperRatings estimates that about $5 billion is held in the ERF sector on behalf of four million account members. Jeff Bresnahan, SuperRatings managing director, said there were a number of disturbing aspects associated with the management of ERFs. “These include excessive pricing, failure to pass through investment earnings to small account balances and a general lack of interest by many funds in either trying to find members or to make reclaiming their super an easy exercise,” he said. The six ERFs to be given silver ratings by SuperRatings, which represented “reasonable value for money” were: Advance Retirement Savings Account, AMP ERF, Aon ERF, Australian ERF, SuperTrace ERF and the Public ERF. Bresnahan said the management of an ERF was considerably simpler than that of a similar size super fund but combined admin costs and investment costs in many cases were higher. “Our view is that a significant number of commercially operated ERFs have levels of profitability higher than reasonable and at the expense of members who, in many cases, would not be aware of these implicitly structured fees.” The seven ERFs SuperRatings looked at but did not rate were: Australian Choice ERF, National Preservation Trust, Norwich ERF, Plan B ERF, SMF ERF, Super ERF and Super Safeguard. Bresnahan said: “We would urge all trustees … to completely review their current nominated ERF to ensure that not only are they discharging their fiduciary responsibilities, but that their members are being provided with quality benefits even after they have left the trustee’s fund.”