It’s an enviable record no other listed company can match. For more than 120 years, through major conflicts and economic upheaval, this diversified investment house has always kept shareholders top of mind, not missing a beat on the dividend front since listing in 1903.
A new research report finds many older Australians are deeply worried about the cost of care and don’t understand how it interacts with the aged pension. For most, the best solution is to remain in the family home.
Why baby boomers are opting to retire their industry fund
Baby boomers approaching or just in retirement have enjoyed a dream run with superannuation. They have had 32 years of employer contributions pouring into their funds with nary a care in the world. The APRA-regulated funds – especially the industry funds – have, by and large, performed well in the accumulation phase.
But it’s proving a different story in the decumulation phase, with the aura of invincibility that has surrounded industry funds for decades beginning to dissipate. After decades of supportive legislation and favourable media coverage, these so-called profit-to-member funds are feeling the blowtorch, in much the same way as the financial advice industry has in recent years.
From my privileged position as a financial adviser and on the frontline of the investment and superannuation industries, many of today’s issues have been evident for years, ultimately reflecting what I see as two key issues facing the superannuation sector – disconnect and clarity.
In the past few weeks, the construction industry super fund, Cbus, has been hit with court action by ASIC over the alleged mishandling of insurance payouts. The health and community fund, HESTA, has been forced to refund members who switched between investment options during the pandemic due to the slow repricing of their plethora of unlisted assets, and the impact this had on returns.
Then AustralianSuper lost $1.1 billion in a single investment into the failed technology platform Pluralsight to close out what many in the industry are suggesting is just scratching the surface of the challenges facing the industry. Significantly, all this is happening to a sector that has become systemically important to the economy.
While it would be easy to blame the Super Guarantee gravy train for a lack of focus on these funds’ operations, it seems the bigger issue comes down to a disconnect with members and clients. The evidence has and will continue to show that more and more members leave these major funds as they near retirement, and few can explain why.
In my opinion, it comes down to communication. For most people’s lives, their superannuation is viewed as someone else’s money, or something they can’t touch, and hence feel comfortable outsourcing this to a large institution without question.
But when they reach retirement, people inevitably want to know where their money is going, and how it is invested. Most importantly, they want to know how long it will last and how they will be able to deal with the uncertainties that come when there is no regular pay cheque.
Despite many funds having more than 1,000 employees, this pales in comparison to the millions of members they seek to support. How can any business offer emotional support to tens of thousands of retired clients who are concerned about what will happen to their bank or super account when they die? Most financial advice firms won’t exceed a client to adviser ratio of 150 to 1 for just this reason.
It seems one of the key reasons that super funds can be called out on the most basic levels of their service comes down to a disconnect with their members. And the challenge in servicing so many members in retirement is that this would require significantly more staff, which, in turn, would increase the cost for these funds.
Expanding on this disconnect, and what stands out during client conversations, is a lack of clarity on their approach to investing, and how this is communicated to members. With members seeking more information when they head towards retirement, a blanket, over-simplified investment policy just doesn’t cut it.
Sit with any experienced financial adviser and they will be able to answer the question, “how will you invest my money down to the last dollar”? More importantly, most will be able to provide a coherent framework, such as core satellite, or active management, despite amounts that would be immaterial to a major fund.
Clients want to know what is driving their returns daily, and they want to know if they are invested in the companies making the news and what impact this is having on their portfolios. Similarly, and in an age of improving financial literacy, they want to know what their investment manager is adding above and beyond the average. Unfortunately, much of this information is difficult to extract except for the most experienced investors.
As a financial adviser, our performance is constantly compared with industry funds, while historically few have done the opposite. That situation is coming to an end, with many industry funds likely to come under the same heightened scrutiny that the advice sector faced for many years. For the sake of these funds’ members, let’s hope they respond. Quickly.
