With the end of financial year behind us, yearly super statements have begun to arrive. This coincides with a ramping up of advertising from major industry funds, shouting from the rooftops about their exceptional performance.
People who are not in industry funds may look at their statements and the performance of supposed “like for like” funds in the media, and wonder about making a move. The end of year statements always provide a fantastic opportunity to assess whether your fund is meeting your performance expectations. While performance is an obvious factor for assessing if your super fund is appropriate and working for you, there are other factors you should also be considering. One of the most important factors being transparency – do you know what you are actually invested in? We have discussed the creative use of “balanced” in this previous article but it is worth digging deeper into the assets that funds hold and how they are valued.
Recently, there has been a spotlight on the ‘unlisted assets’ held by industry funds such as Hostplus. Nearly 50% of Hostplus’s default Balanced option is invested in unlisted assets such as property, infrastructure, private equity, and venture capital. These unlisted assets are independently valued. Many funds never reveal how frequent these valuations are taking place or their methodology suggesting valuations may not represent an accurate assessment. Independent valuations may not reflect current public market valuations which means reported returns aren’t accurate. Wealth adviser Steve Blizard, chairman of the superannuation policy committee of the WA Liberal Party said he did not “trust industry funds” when it came to closed-door valuations. It is important to understand what investments you’re holding within your super fund to ensure they align with your investment goals and values. This is moreso the case for retirees who are reliant on their funds to provide regular sustainable income.
An Alternative to Industry Funds
This is, of course, not to say that industry funds are bad or inappropriate for your needs. We recognise that industry funds provide excellent low cost outcomes for those with smaller balances, and that there can be many benefits to industry funds. It is a widely known fact though, that you are unlikely to find financial advisers recommending industry funds. Cynics will say that this is because industry funds don’t pay fees to financial advisers, however it is not as simple as this. As financial advisers, we like to be across exactly how our client’s money is invested, right down to each individual underlying investment. This is almost impossible to do with industry funds. The alternative to industry funds that advisers often consider are wrap products or retail funds that actually prioritise transparency. Essentially, these types of accounts are superannuation investment portfolios managed by a fund manager and a financial adviser. The assets within these funds are often directly listed investments which enables valuation day by day and minute by minute. You can be involved in the selection process meaning all investments are understood, areas of special interest can be included, and most importantly all investments meet your values and philosophies. These investments are tailored to your goals and align with your environmental and social values. Many investors prefer this approach rather than an industry fund where you may not know or understand what you’re invested in.
Ongoing Management & Review
Utilising the services of a financial adviser for your super doesn’t just mean assistance with initial establishment. Advisers can provide ongoing management for a fee. A management arrangement provides ongoing investment advice and support, regular face-to-face and written reviews, and often access to your advisers at all times. A yearly review aims to assess the appropriateness of investments and asset allocations, and whether they are still meeting your goals. The difference an unsuitable investment option can make to your balance is significant so it’s important to review your investments frequently (read more about this here). All of this doesn’t necessary come at an extra cost to your existing arrangements, as fee structures across various fund types differ greatly. It may be that using an adviser can result in you paying less and receiving more service in return!
One Last Word On Your Yearly Super Statement
You may have received your annual super statement for the financial year just gone. These statements are valuations as at the 30th of June meaning they’re likely already outdated. Since June 30, the market has improved by over 3%. So if the figure on your statement is somewhat depressing, it is likely that it has already improved slightly! If you would like to discuss your superfund, or get a more updated report for your balance, don’t hesitate to contact us to have a chat. Super shouldn’t just be a set and forget investment especially for those approaching the end of their working lives.