Have you ever tried to compare the performance of your super fund with another fund? Even for the financially literate, this can be a challenging and frustrating exercise.
Recent AIST-commissioned research found that most people have no idea where to start.
The research – conducted by Essential Media – revealed widespread misconceptions among consumers about how their fund was performing and what might be considered good performance.
There was a distrust of using past returns as an indicator of future performance as some research participants took the warning that “past performance is no guide to future performance” too literally. Most worryingly for those in poor-performing funds, there was little appreciation of the importance of net returns in driving optimal retirement outcome. Forgetting that super funds’ job is to deliver value above the 9.5 per cent contribution rate, some thought that because their fund balance was growing, that this was good enough.
The challenge to compare fund performance is most acute for choice super products –people end up in these products if they leave their workplace default (MySuper) fund.
While, as the name suggests, these products are supposed to be for members who actively choose a super fund, we know that this often isn’t the case. In fact, so called choice products allow some for-profit super providers to charge higher fees and provide lower returns outside the consumer protections that exist in the default system.
When the Productivity Commission recently conducted an in-depth review of the super system, it found 36 per cent of choice super products in their sample underperformed return benchmarks. Almost all of these were offered by for-profit super funds. The Commission found that four million Australians were in high-fee funds. Again, almost all of these were choice products run by for-profit super funds.
These problems in choice products meant default (MySuper) products outperformed choice products by two per cent per year on average over the 13 years of the Productivity Commission’s data
The problem isn’t lack of consumer education. It’s lack of transparency masking problems with the products themselves. There is no requirement for standardised reporting of fee or performance information for choice products. For-profit super providers have resisted this reporting for years.
No-one would knowingly choose to be in an underperforming fund. In fact, many of the members of poor-performing choice funds would have been advised by those with vested interests to take them up. If plain English information about the long-term performance of these products was available at the click of a mouse button, it’s highly likely that many choice members would switch to a better product.
Even in the MySuper sector – where funds must disclose net returns as well as a statement of fees and other charges in a standardised product dashboard – anyone wanting to compare funds still needs to search across multiple fund websites for the product information.
In these revolutionary times of digital information and communication, it shouldn’t be this hard. And, indeed, it isn’t.
The website of at least one leading industry fund has, for some time now, provided a simple tool to compare super funds on an apples with apples basis. In a matter of minutes, the tool provides a comparison of investment returns, services, fees, and insurance. The data used to support this tool is supplied by one of the commercial rating agencies.
AIST believes there is a strong case for the government to produce a similar tool using regulator-approved data. This tool could then be used by anyone who wants to check on their fund, and consumers would be confident that the data was independent.
While the rating agencies have long provided a much-needed service to fill the performance data gap, each agency applies a different rating system and its voluntary for funds to report.
Consumers should have the ability to make a genuine choice if they want to. Super funds should be required to report fees and net returns on all products in a comparable and standardized way. This should be available on an independent, user-friendly comparison website.
The idea of the government providing an independent, user-friendly comparison website in superannuation had overwhelming support from those who attended the focus groups as part of Essential Media’s research. As one participant commented: it’s a no-brainer.
An independent comparison site would be a great idea, however, the industry can’t even agree on what a defensive and a growth asset is! So how is it possible to compare apples with apples? Some funds call property, infrastructure, venture capital ‘defensive’ assets. Their “balanced” funds are actually “high growth” investments, so a true comparison is impossible.
Any comparison would be misleading without accurate disclosure of underlying assets. And in the case of direct, illiquid assets, this should include the date of the last valuation.