INSIGHTS WITH EVALESCO
Superannuation has provided most fund members with stellar returns since last year’s COVID lows. As always though, some funds performed better than others and recent government reforms make it easier to find out how your fund compares.
Indeed, you may have noticed recent media reports naming 13 super funds that failed a performance test conducted by the super industry regulator, the Australian Prudential Regulation Authority (APRA).
While the news may have come as a shock to members of those funds, it’s important to understand the aims and limitations of the new test.
We should note that the AAN models, both Core and Growth are not included in this comparison tool. This tool is simply for the government structured MySuper products.
The AAN models are investment options not a product, and while they have outperformed even the best returns by the MySuper products, they are classed as retail super. No 1 is the Local Authorities Super Fund (Vision MySuper) which had a five year performance of 9.6% @ 30 June 2021. The AAN Core Model had a performance of 10.82% for the same period. The worst MySuper result for the five years was 6.5% (Energy Industries Superannuation Scheme) AAN Growth did not have a 5 Year result at 30 June 2021 as we only introduced it in September 2016 – its 5 year performance @ 30 Sep 2021 was 13.64% but this is a slightly different period.
Performance is not the only indicator to pay attention to as models like the AAN Core also include downside protection elements which, in bull markets, can detract from performance but help in reversing markets. Past performance is also not necessarily indicative of future performance.
Background to super reforms
Under the federal government’s Your Super, Your Future reforms passed in June, super funds that fail to meet an annual performance test must notify their members about their underperformance. Funds that fail the test for two consecutive years won’t be able to accept new members until their performance improves or they merge with another fund.
The government has also made it easier to compare funds. As of July 1, anyone can jump onto the ATO’s new YourSuper comparison tool, which ranks funds by fees and investment returns.
For now, though, the tool only compares MySuper funds which are the default products for employees who don’t choose a fund.
While it’s hard to argue with any initiative that aids transparency and protects people from poorly performing super funds, caution is needed when interpreting the super tool.
Compare like with like
When you compare super funds, it’s important to compare like with like. Awarding funds, a simple pass or fail does not take into account a variety of factors such as the risk and return trade-off in investment options and whether the fund is a lifecycle product that reduces risk as a member ages.
Conservative options with a higher percentage of cash and fixed interest investments tend to deliver more modest returns in the long run but with a smoother ride along the way. Whereas balanced and growth options with a higher allocation to shares may deliver higher returns in the long run but with more volatility.
That means a fund may underperform in the short term but still provide members with their desired level of risk and returns. Working out the most appropriate option for you will also depend on when you plan to retire and how much longer your money will be invested in the market. Generally, the shorter your time frame, the more conservative you are likely to be.
The YourSuper comparison tool also doesn’t consider the value of insurance offered by funds or other member services.
The value of advice
While the government’s super reforms are aimed at those who may not be engaged with their super or understand how their savings are being managed, you don’t need to go it alone. This is where our expertise can assist, ensuring your choices are tailored to your circumstances and guiding your decision.
In fact, a recent study by Russell Investments quantified the value of advice. It found that financial advisers added an estimated 5.2 per cent in value to their clients’ portfolios in the tumultuous period from the beginning of the pandemic through to the market’s stunning recovery by mid-2021.(i)
The report broke down this figure of 5.2 per cent into five key elements:
- Preventing behavioural mistakes, like switching to cash and crystallising your paper losses after a market fall (2 per cent)
- Advising on appropriate asset allocation (1.1 per cent)
- Optimising cash holdings (0.6 per cent)
- Tax-effective investing and planning (1.5 per cent)
Expert wealth management knowledge derived from years of market experience – priceless.
The report found the beneficial impact for an investor who started 2020 with a portfolio worth $250,000 and stayed in the market until 31 May this year – rather than switching to cash when markets were volatile in March 2020 – was as large as $40,000.
The bottom line
It’s important for all investors to understand how their super is performing. Even more important though, is having a financial plan that takes into consideration not just your choice of super fund, but all your personal goals and circumstances. If you know of anyone who has concerns based on the recent findings, we would be happy to run them through the results and help them look at all the relevant options.
As always, if you have any concerns at all, please do not hesitate to give us a call.
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We believe the true value of financial advice isn’t found in dollars and cents (although this is important too!) but in the peace of mind a financial plan can provide. It’s knowing where you want to go and how to get there, with a dedicated team behind you every step of the way.
We know the impact of good holistic financial advice can make and we have the life experience, technical capability and quality support team that can make that difference for you. We’ve empowered over 1000 families through the delivery of great financial advice, to be healthy, wealthy and happy.
The amount of super you’ll need when you retire depends on your big costs in retirement and the lifestyle you want. The Associate of Superannuation Funds of Australia (ASFA) estimates for a single $44,224 a year and for couples $62,562 a year is how much you may need. This is only an indicator and our advisers assess everyone’s individual circumstances.
The fees we charge for financial advice is only a fraction of the value we derive for our clients, meaning our clients are always better off after seeing us. Rarely do we encounter a new client invested appropriately for their needs, with adequate risk protection, structuring and estate planning provisions in place. Even small tweaks to a financial plan over a long period of time can result in drastically better outcomes for our clients which eclipses the fees of the financial advice. Additionally, you can opt-out of an ongoing fee arrangement at any time.
In our discovery meeting with you our advisers discuss the initial advice fee and the ongoing fees associated with our services.
After our initial phone call to discuss why you are seeking a financial adviser, we arrange a discovery meeting that outlines what is important to you, your current position, our areas of advice, our approach. We then present a Statement of Advice (SoA) to discuss your goals and our recommendations and go through the steps of how to proceed to the implementation stage. After signing the SoA, we discuss your questions, get you to sign the authority to proceed and complete any application forms before implementing the recommendations detailed in the SoA.
One thing to consider is the interest rate on your home loan in comparison to the rate of return on your super fund. Before making a decision, it’s also important to weigh up your stage in life, particularly your age and your appetite for risk. Whatever strategy you choose you’ll need to regularly review your options if you’re making regular voluntary super contributions or extra mortgage repayments. As bank interest rates move and markets fluctuate, the strategy you choose today may be different from the one that is right for you in the future
The information provided on and made available through this website does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances. Evalesco Financial Services do not warrant the accuracy, completeness or currency of the information provided on and made available through this website. Past performance of any product discussed on this website is not indicative of future performance. Copyright © 2019 Evalesco Financial Services. All rights reserved