Super sneaky super funds?
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Everyday people just don’t trust their super fund like they used to.
Super is complex. And Australians hate that complexity. They want transparency and clarity. And they want authenticity. They want their funds to do exactly what they say they will.
The good news is the super fund regulator, APRA, agrees. And they have finally started shining a light on the super industry.
And, boy, it’s clear the super industry doesn’t like it. It doesn’t like the scrutiny, the forced transparency or the accountability, and they’re railing against it.
But the super funds are managing your money, not their own. And since it’s your money, you should know exactly what’s going on.
APRA’s new ‘heatmap’ analysis
In December, APRA released a report on 93 Australian default super funds, known as ‘MySuper’ accounts.
APRA’s new ‘heatmap’ report compared funds on fees and investment performance. It identified 19 chronically underperforming super funds, including big retail funds like BT Super as well as not-for-profit funds like Mine Super, Christian Super and Maritime Super.
But it also sheds some light on why some high-profile funds are outperforming.
All may not be as it seems
If you ask most people what a ‘balanced’ fund invests in, most will say a range of investments. They will say that there is a ‘balance’ between risky and secure investments, say, a 50-50 split.
There’s safety in a balanced investment. Diversification between risky and secure assets means that your underlying investments will perform differently under different market conditions. And when markets fall, as they regularly do, then there’s some protection from losses.
But it appears that some funds may be taking extreme risks with your money.
Hostplus is an excellent example. According to the APRA analysis, the Hostplus Balanced MySuper product has a whopping 93 per cent allocation to growth assets and just 7 per cent allocated to defensive assets. That’s what other super funds would label a ‘high growth’ fund.
But Hostplus calls it ‘balanced’.
Untruth in labelling
It’s a problem because investors are taking more risk than they think. Hostplus is the darling of super funds at the moment, with strong long-term returns. Even Scott Pape, the ‘barefoot investor’ recommended it in early editions of his book.
But it takes no great skill to perform well when share markets perform well if that’s where you’re invested. Keep in mind that the Australian economy has been the world’s best over the long-run, having experienced 28 years of uninterrupted growth.
But when markets inevitably fall, the losses will be severe. And if you’re approaching retirement, or have recently retired, then those losses may be something you can’t recover from financially.
The golden rule of investing
The most important thing is for investors to understand what they’re invested in. But that’s harder than it seems. And when super funds mislabel their investments, it’s practically impossible.
But not if you have a trusted partner by your side. At When Financial Solutions, we’ll work hard to really understand where you’re invested, and take the time to explain everything just to make sure you’re not taking any unwarranted risks. And because we’re not aligned to any super funds, we can recommend you make changes if things don’t quite seem as they first appear.
We’ll provide you with the transparency and clarity you need to give you peace of mind.
With When Financial Solutions, it’s not a matter of ‘if’ you will understand and trust your investments, but ‘when’.
Michael Bowman and James McMaster are co-founders of When Financial Solutions