The latest Roy Morgan research estimates that in three years to November 2015, approximately $35 billion in superannuation was switched.
What’s interesting is that 31% of those that switched didn’t receive any advice.
Being a financial planner and knowing the intricacies of superannuation, it astounds me that so many people didn’t seek advice. Looks like the profession has a way to go to improve its public image.
Superannuation is complex, and as much as they want you to think that it’s easy to compare apples with apples, it’s not. Here are a few things to consider.
- Be careful when comparing returns. Returns are a function of investment risk in a portfolio. If a fund is taking less risk, chances are long term returns will be lower. Higher risk, then you’ll have higher long term returns. It’s important to understand how much risk is being taken in the investment option to ensure you are comparing apples with apples. Most of the time people aren’t even aware and they simply compare the % return.
- Be careful when comparing fees because it’s confusing. Some funds charge a flat dollar administration fee, some percentage based, some have a cap on administration fees. Some funds don’t show an administration fee making you think administration is free, but it’s usually built into the “management costs”. Then there’s the investment management fee. You might see it referred to as an indirect cost ratio or management expense ratio and it’s mostly always a percentage based fee.
- Fees are fees, what’s important is your net return. When comparing products you should be interested in your return after fees. Compare net return of Fund ABC with the net return of Fund DEF.
- This might sound obvious, but make sure you are comparing returns of the same time period. 1 year return to 30 June 2015 is completely different to 1 year to 31 December 2015. It’s not apples with apples.
- Personal Insurance (Life, Disability and Income Protection) is often overlooked when people switch super funds, much to their peril. Shutting down a super fund means cancelling the cover which you may not be able to get back easily or as cheaply. Do you need the cover? Is it structured correctly?
- Seek advice from a CERTIFIED FINANCIAL PLANNER®. It’s worth it and you’ll be better off in the long run.
For more information on the services we offer around superannuation, check out our page Super and Retirement Planning.
Contact us on 08 9381 6811 for a complimentary consultation. Ray is a CERTIFIED FINANCIAL PLANNER® and LIFE RISK SPECIALIST® and has a Bachelor’s of Commerce in Financial Planning (with distinction). He is a member of The Financial Planning Association of Australia. We are based in Perth, Western Australia and specialise in retirement planning, wealth accumulation and wealth protection (life and disability insurance).
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