Why your financial planner, feels Industry Super funds are NOT her first choice!

By – Sofie Korac (Prudentia Financial Planning)

The more I research and deal with Industry Super Funds the more I find them not suitable for the majority of clients. Here are my reasons:

• They are not transparent – it is very difficult to get a thorough understanding of their underlying investments apart from the general asset allocation. This means it is hard to compare returns but research that compares apples with apples indicates that wealth management by financial planners performs better.
• Distorted portfolio labels – most Industry “Balanced” funds are not actually balanced at all. They tend to be anywhere from 80% to 95% of the portfolio invested in “growth” assets i.e. those assets that can fluctuate significantly over short time periods such as shares (fluctuations that are used by some as ‘performance’ but that is not the right way to describe investment outcomes, long term performence is what is important), property/infrastructure and private equity. They have very little invested in conservative assets such as Bonds and other fixed interest investments. Some members will get a shock when the next major market correction occurs.
• Misleading comparisons – comparisons with retail “Balanced” funds are not valid as most other “Balanced” funds only have 60 to 70% allocated to “growth” assets. It is well documented and researched that the majority of portfolio returns can be attributed to how much is invested in “growth” assets. However, more growth assets means more risk. (Reference: The-hudson-report-blog/compare-the-pair)
• Misleading promotions of returns – In February of this year, Industry super funds were still promoting their returns from the previous financial year; my research showed they were over-stating their performance by a significant amount. Performance for Industry funds have fallen significantly since June 2018.
• Not all Industry Super funds perform well – the performance of a few large funds hides the chronic underperformance of a multitude of sub-scale union funds –which explains why every “compare the pair” union fund campaign uses selective averages which may not compare apples with apples (Reference: Melinda Howes, GM Superannuation at BT Financial, Updated Apr 11, 2018 — 3.20pm).
• HostPlus downgraded – In May 2019, independent research house “Lonsec” downgraded HostPlus Balanced Option due to under-resourcing and lack of a targeted allocation to traditional defensive assets such as fixed income and cash, which have historically provided defence and liquidity when required (Source: Daily Bulletin, 28.05.2019,  ResearchBulletin@lonsec.net.au).
• Group insurance through Industry Super funds are generally inferior to personally held insurance cover – they can change the insurer, definitions, policy details and default sum insured amounts at any time even if it is detrimental to the member. The reason for this is that the insurance contract is with the Industry Fund and not with the individual member. When you take out an insurance policy directly with the insurer through an adviser, the law does not allow the insurer to make any changes to your insurance policy that would result in a detrimental outcome to you, however they are allowed to make improvements.
• No adviser access or dedicated phone line – makes it very difficult to do my job efficiently and you can spend up to an hour on hold.

Internal financial advisers are subsidised by all members whether they use these services or not and they are limited on what they can advise; they can only provide recommendations around their own products.