The superannuation industry has been evolving rapidly over the last decade with changes to products and availability – and with so many funds around it is hard to know which is best.
Generally speaking, when considering a fund features, benefits and freedom of investments is inversely related to fees – however this is changing!
This article covers the different types of funds available
Types of funds
There are 3 main types of super funds you would usually see – Group, Retail and SMSF – below I will summarise the pros and cons of each.
Broadly speaking these are the low cost, low feature option, although some funds are improving their features and benefits.
They generally have a small number of investment options – usually around 4-6 (but sometimes up to 20 or 30) and very little information about how they invest.
Your money is pooled in with everyone else’ which can have some tax advantages and disadvantages depending.
These can be a good option if you have a low balance, or if you’re not really engaged with your super.
Watch out for!
Some employer funds can still be quite expensive – do your research!
You may not get to choose your own fund, depending on your employer.
The investments may not be very transparent – or in some limited cases misleading (A recent super fund “Spaceship” came under fire for stating they “picked the best future looking companies” when they mostly held index investments ie: they didn’t pick any companies).
Retail funds/Wrap accounts
Retail funds and Wrap accounts are more individualised and will have a lot more options around your investments – usually around 300-500 options.
They are usually also your personal account, so you benefit from your own tax deductions within the fund.
Depending on your balance, they can often be more expensive than industry funds.
If you want to be more engaged with your super, want greater transparency in your investments or want an advice led portfolio – adviser led retail super may be for you!
Watch out for!
High fees, where you don’t use the features
Trail commissions or high fees, particularly with old accounts
Not being invested correctly for your situation – seek advice!
Self-Managed Super Funds
Self-managed super funds are a growing rage and more noticeably over the last few years – being the fastest growing sector of the super industry.
With a self-managed super fund – you are the trustee and you run the fund. This involves managing the investments, the administration and the compliance yourself (you can get advice and help, but the responsibility ultimately sits with you). Basically, you run your super.
They can be great if you have specific requirements from your super – such as using it to purchase a commercial premise for your business – but the rules can be complex and the penalties harsh. They can also cost a fair amount to set one up.
They are good if you want to be fully engaged with your super and you have a balance of at least $2-300,000 (ideally more), or want to use your super to buy property.
Watch out for!
Misleading information about SMSFs – Make sure if you set one up, it is with a qualified and licensed financial adviser. They are not able to be established by other parties.
The complexity of running one – they require work and effort, are not just ‘set and forget’ and have lots or rules and regulations you need to be aware of.
The costs to establish one – which can be between $5,000 and $10,000.
What should I compare?
There are a few major comparison websites – but you’ve got to be careful as they don’t always compare apples with apples. Look out for:
Variety in the Investment menu
Does the fund have a range of different investments?
Are the investments branded the same as the fund? Or do they have options from other companies?
Does this matter to you?
Funds can often offer you discounts or automatic cover - make sure you take into account your ability to get other cover when replacing your current fund.
Fees on your fund are important because over time, high fees can eat into your returns – but cheaper is not always better either.
Admin and account fees
These are the costs you pay to the super provider to run your fund.
Account fees tend to be flat, often levied weekly and generally range from $52-$156 a year. Not all funds charge account fees.
Administration fees are a percentage of your balance, and can range from 0.00%-0.77% of your account balance. Often with more advanced products, the more you have in the fund, the lower the overall fee.
Broadly speaking anything around 0.3%-0.5% is competitive depending on features.
These are what you pay to the investment manager to manage your money.
On the cheaper end you can invest in passive or index options – around 0.06%-0.35%
For more active investments you can pay up to 1.5% however fees around 0.7% is standard.
The right fund can differ from person to person - depending on your situation and whether you want to take control of your finances.
If you would like more education or advice, book in a phone call or meeting with me firstname.lastname@example.org
DISCLAIMER: The information contained within our website is of a general nature only and has been provided without taking account of your objectives, financial situation or needs.
Because of this, you should consider, with or without the assistance of a financial adviser, whether the information is appropriate in light of your particular needs and circumstances.