Industry or retail? Funds ain’t funds

Bruce Brammall, The West Australian, 9 April, 2018

Opposites attract

The best wars, the ones that are absolute crackers and that grab us viewers by the throats, are those that take place over years, even decades.

Tennis grand slams. The Olympics. World Cup Soccer. The Ashes.

When they occur, each of these, individually, are “battles”. But they are part of a longer-term “war”. Borg v McEnroe. The US versus Russia. England v Germany. Bruce Brammall v Michael Bevan (granted, it was under-11s Canberra cricket and Michael probably doesn’t remember it. And Bevo won, clearly, anyway).

Some battles are won. Some are lost. At the end of the day, it’s all about winning the war.

This applies to the never-ending sniping between retail and industry funds. The battles never end. The war, in this case, will never be won. I guarantee you that, in 10 or 20 years, we’ll still be arguing this. And both will still be thriving.

I’m not going to argue with the published statistics. Reputable statistical groups put out numbers that suggest that industry funds perform better, after fees, than retail funds.

But I will argue that the comparison isn’t as simple as that appears. And it ignores a lot of information.

The main part is: Industry funds do not, essentially, provide advice to their members.

They do not have someone sit down with their clients and recommend that instead of being in their fund’s balanced option, perhaps they should consider the “growth” or “defensive” options, which might help them achieve their goals better. Sure, they send you letters every year. But the overwhelming majority of industry fund members do not have an actual relationship with their fund. Industry funds don’t have personal conversations, or conduct reviews, where they discuss your situation with you.

If you are 20- or 30-something and your adviser encourages you to shift to a growth, or high-growth, fund and that adds 1, 2 or 3 per cent a year, over 30-40 years to your superannuation balance, would that advice have paid for itself several times over?

If you are 55 or 65 and your adviser recommends to dial the risk down and you avoid the worst, though not necessarily all, of a GFC market meltdown, would that advice have not been worthwhile?

What if they get your insurance in place, giving your piece of mind? That they help you invest some money outside super, so that you have access to investments before you retire?

Industry funds absolutely have a place. They are an integral part of Australia’s super system. Particularly for the millions of Australians, who, no matter how much advertising is thrown at them by all sources, simply refuse to care about their super.

Someone has to manage the money for people who, pardon me, don’t give a shit. And who cannot be persuaded otherwise. Industry funds do a great job for millions of Australians here.

But, if you do care, you have three broad options. They all involve taking some degree of control.

The first is to start a self-managed super fund. The second is to use a super platform that allows you significant control over your actual investments, which more and more platforms do, including industry funds.

The third is to accept that you don’t have the time, or interest, to do the research to understand what risk profile suits you best, what investment options might achieve that, what your contribution strategy should be, what insurances you might need, whether to contribute extra to super, what money you should actually be investing outside super, in property, or shares, or cash, or whether you should be paying down your home loan, or have the money in your offset account.

Industry funds do not provide services as your “money coaches”, providing advice that will help you with your whole financial situation.

Industry funds are, in essence, “no advice” models. They do it cheap, because they don’t have the overheads of professional advisers engaging with their clients. They do a good job of looking after the super funds of millions of people who don’t care about their super. But they don’t/can’t/won’t look after anything else for you.

They have a very limited brief. Your super fund with them. And, perhaps, a little bit of insurance, if you approach them about it.

I love industry funds. They are a very important piece of Australia’s super puzzle. But performance statistics don’t prove the winning of any war in regards to financial advice.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial advisor and mortgage broker. E:

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