How do you simplify Superannuation documents?

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Todays’ Australian Financial Review includes an article “Disclosure statements found wanting” (page 56 Financial Services, AFR Friday 29th October 2010).

Now there is a non sequitur if ever i’ve seen one! That statement assumes that there would be a time when superannuation statements would NOT be found wanting – and i really can’t see that happening.

The story is that the Australian Securities and Investments Commission (ASIC) has reviewed 200 “product disclosure statements” (the equivalent of a prospectus or an offer document or an explanatory memorandum etc) and found that they were too long or full of jargon (roughly quoted).

The recommendation was that the industry should look to standardise some terms – such as “balanced” and “growth”, as well as make the documents shorter. Perhaps 8 pages would be ok…?

It’s a great idea, and you’ve gotta love ASIC’s persistence in attempting to get the balance right but the odds are firmly stacked against a good outcome in this particular task.

How can i be so negative?

Experience. It has been my experience that the regulators make very valid suggestions for improvement, while some other regulatory body goes on to require appropriate disclaimers, disclosures and that sufficient information is provided to allow an uninformed member of the public to make an informed decision on whether or not to purchase a particular investment on offer. Add to that the legal issue of being liable for what you DO NOT SAY as much as what you do say, and we are beginning to have a conflict. Further salt is rubbed into the wound with the expectations and requirements of insurers – who have much more say that you’d expect, when it comes down to policy terms and conditions attached to professional indemnity products and the like.

Here’s an example of why the job is soooo hard…

Let’s pick on AustralianSuper – an “Industry Fund” that i quite like. It has competitive fees, a good mix of options for investment and is big enough to be able to deal with issues such as fraud. So it’s not a bad example of a super fund. How easy would it be to distill an application for this super fund down to 8 pages? Not easy, is the answer. Here’s a quick look at the 64 page document that is available for download on their website.

  • 6 pages – cover sheet, contact details, table of contents, where to go for extra info, where your money goes and other services available.
  • 4 pages – info on contributions and limits and the like.
  • 8 pages – very, very brief notes on each standard investment option.
  • 1 page – investment management fees.
  • 15 pages – info on insurance options, costs and how it all works.
  • 4 pages – more info on fees.
  • 5 pages – brief fact sheets on changing jobs, balance transfers, accessing your super etc.
  • 2 pages – Financial Services Guide (FSG). Important legislatively prescribed info sheet.
  • 4 pages – disclaimers, notes, foreign language info.
  • 16 pages – application forms of one type or another.

Here’s a bit of an attempt to bring it down to 8 pages…

  • 2 pages – financial services guide. You basically have to present this information.
  • 2 pages – A list of investment options and associated fees.
  • 2¬†pages – Simple tables listing death, disablement and income protection rates and costs.
  • 1 page – brief description of the types of cover and other insurance information.
  • 1 page – comprehensive listing of where to source other information.

And notice i’ve made no allowance for application forms.

There isn’t enough space in that list to include very much helpful information at all. It’s really just a listing of facts. You could try having this as your primary document, and refer from it to a host of potential attachments or supplementary documents (such as more detail on investment options, insurance, tax and legislative impacts, other services offered). However, you then have the question of whether the person who completes the application forms was actually in possession of enough information to make an informed purchase? How do you know they received the appropriate attachment?

Of course, you could say that this or that company has done a better job than AustralianSuper. However, a quick look at the Product Disclosure Statements (PDS’s) of other companies reveals it as a fairly common problem.

AMP (112 pages), Colonial First State (67 pages), AXA (88 pages) and this is just a sample. Of course, some PDS’s will include options for pension funds in the same booklets, and some will make a greater or lesser attempt to include marketing and/or informational material.

My overall point – trying to distill these documents down to a small number of pages might not actually be such a good idea. There is a lot of information to know when you are looking at super funds and the search for simplicity may bring about as many poorly formed decisions as are currently being made from more complex documents.

Dare i suggest it..? Is this perhaps a case for seeing a financial adviser who is able to help you make comparisons between funds and to assist in interpreting the complex documents?

Don’t we then get back down to the whole bias/independence issue? If you don’t think so then here’s a test – go to the relevant “Industry Fund” for your industry, and try to compare it to the other “Industry Funds” that are available to you. How many of the advisors from Host+ super are going to recommend you invest into AustralianSuper? Alternatively, try to choose between two major retail funds – say, AMP and MLC. How many AMP advisors are going to recommend MLC policies?

Does this begin to illustrate the difficulty faced by ASIC?


Further Reading

ASIC – As a primary regulator, ASIC provides a host of publications and services to help increase knowledge and understanding of investments.

Industry Super Funds – A group of superannuation funds that combine forces for marketing purposes. The focus is on low fees and simplicity of offering. However, each member fund differs slightly from the others, and the result is a range of fees and services.

understandingmoney.com.au – A government funded attempt to increase financial literacy and promote understanding of financial concepts.

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  1 comment for “How do you simplify Superannuation documents?

  1. Neville Ward
    October 30, 2010 at 12:17 pm

    Thanks Michael.
    It is generally recognized that Aussie super regulation is tough – and complicated but it seems to be well regulated for the most part. Perhaps the supervision of the Regulations and compliance is sometimes found wanting. For me I don’t care how many regulations exist but if it is done simply to bureaucratize the game rather than effectively supervise the “dogs” then it really is a costly waste of time!

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