While acknowledging the important role that SMSFs and different investment options have to play in the super sector, panel chair, Jeremy Cooper, frequently refers to the ‘choice illusion’ and the fact that too many investment choices are adding cost to the system. He notes that “too much choice might be just as bad as not enough” and has questioned the merit of super funds with hundreds of options. The science of behavioural finance has shown us that, when it comes to investing, many people who make choices often make the wrong choices.
This was certainly the case during the worst of the global financial crisis when many of the estimated 5-7 per cent of not-for-profit fund members who switched to more conservative investment options in the past few years did so at the worst possible time – when equity markets were just weeks away from staging what turned out to be a remarkable recovery.
Of course, no one, including the Cooper panel, is suggesting that choice be removed from our compulsory super system nor that the industry should “give-up” on trying to engage members. Funds must continue to investigate ways to improve member engagement and education and to make super more userfriendly. The MySuper requirement for funds to provide intra-fund advice as well as make greater use of online tools should certainly be a step in the right direction. Cooper’s vanilla default option shows early promise and is certainly a welcome departure from the panel’s original “choice architecture model”, which in AIST’s view was unworkable.