Most people cannot resist the siren call of a good deal. From a young age, many of us are taught to shop wisely and look for discounts, to save money on groceries, clothes and bills (which is not too dissimilar to how we invest for clients in our Funds). This may be one reason why many Australians are attracted to low-fee superannuation funds.
Many providers have jumped on this ‘consumer must have’ and promotional activity surrounding the lowest cost super fund, including the well-known ‘compare the pair’ advertising campaign that focuses on the benefits of the compounding effect of lower fees on a retirement nestegg, is widespread. These campaigns resonate with many of the 15 million Australians with a superannuation account, especially as they near retirement.
A low fee does not guarantee good value
The focus on fees alone comes at a price. While selecting the lowest cost super fund may appear to save money for investors, the reality is that it is the net return, after all fees, which determines how fast a fund will grow. Paying a reasonable fee and achieving a higher net return over the longer term is a better option than a low-fee fund that returns less. Cheap does not necessarily mean good. Investors should be focused on the net return of their selected investment and not on the fees in isolation. Getting value for money is the real test.
The value of advice
There are two important decisions that a client can make in regard to investing for their retirement. The first is how to invest their money, including the level of risk that they are comfortable taking, and the second is whether or not they use a financial adviser.
These decisions are made entirely by the client and can make a significant difference to the end result. We believe this is where clients can be and should be provided with more information to allow them to make a better-informed decision.
We are strong advocates of high quality financial advice and firmly believe that good advice around the entire financial situation will determine a client’s future wellbeing. But it should be the client’s choice whether or not they use an adviser and not determined by a super fund that does not allow access unless the client is advised.
The future of superannuation?
With the above in mind, it is logical that greater importance should be placed on the investment options available in a superannuation fund and whether these meet clients’ retirement goals (as guided by the adviser), with less importance placed on the fees.
Ultimate control over all aspects of superannuation should be with the investor. This is potentially the most important investment decision to be made in a lifetime. Superannuation should provide clients with access to a curated range of investment options. Clients should choose whether to invest directly, or use an adviser, and retain as much or as little control over the scheme management as they like. Additionally, understanding how fees are charged and what clients are paying for is vital. Although this may be too much information for most clients, the point is that the fees are clear to see if required and clients should be in control of administrative fees based on the choices they make.
Superannuation should be a user pays, transparent model. It does not need to offer all the bells and whistles by default, but additional features can be added if required by the client, meaning each client pays for only what they need. A range of investment options should be offered, wide enough to tailor a client’s portfolio to their end goals, but not so wide that decision-making becomes difficult.
In addition, as superannuation providers benefit from ongoing technology changes and improvements, these savings should be passed onto the client. Dissecting the administration fee into various categories will allow for fee reductions (when possible) to be easily passed onto the client, which in turn should lead to greater client satisfaction and retention.
When all is weighed up, what should clients and advisers look for? We believe that a good value superannuation solution is not necessarily the one with the lowest fees. We look at superannuation solutions as simply the administrative tool to manage the money invested within superannuation. As such this solution should offer choice, control and treat everyone equally – always!