There has been quite a bit of debate in recent times on various clauses in various “Awards” as they relate to superannuation.
Some argue that this takes away “member choice” and that it unfairly promotes “industry funds” (i have not used capital letters, as i have not investigated whether all awards with these provisions specifically relate to funds that are members of the Industry Funds marketing group). However, i would argue that this is in fact a very good basic step to take in many cases.
One example would be where the existing awards include such provisions. You see, if there is such a provision then that allows the relevant super fund to plan their cashflow quite tidily. This, in turn, allows for a greater scope of investment options as that cashflow should allow the Trustees to adopt longer term strategies that are less focussed on the short term and immediate liquidity needs.
If such a fund was to suddenly find that its cashflow was being cut off – with a lot of new members being directed to other funds etc – then that would increase the risk to the existing members of that fund. This would be entirely inappropriate, especially at the current time where issues such as cashflow and liquidity can make or break even very large companies.
The retail funds management industry would prefer to see greater scope for alternatives to the “default” funds but realistically any decision in this area needs to account for more than just the principle of unbridled competition.
Another reason why an industry-type fund is appropriate is that retail funds assume fundamentally that there is a financial planner or advisor or authorised representative or whatever noted on the account. This means that there is a built-in cost for some element of planning advice within the fee schedule (it is not always the case but it often IS the case), and for the Government SGC super (ie, the 9% employer contribution) it is a good idea for people to only move to a retail fund if they have specifically dealt with an advisor and have been shown the relative pro’s/con’s of the alternatives. For a lot of people, visiting a financial planner is the equivalent of a trip to the dentist for tooth extraction, and so the generally low fee schedule that applies to most industry funds is appropriate – as they will not be utilising any advice that may be offered.
My comments on this are with one (very big) caveat – there needs to be a better communication by industry funds of their investment strategies. Too much material is simply based on the idea that the Trustee will take care of it and so long as your money is in an industry fund, you’re ok. The recent past where new members arguably paid too much for their investments in funds with high percentages of unlisted assets is one example of how the industry funds have failed to look beyond the ideology and truly considered the super offering from a member perspective.
This is very much an opinion, and one that can be easily argued against but my thoughts are that the default strategy in any fund should be cash. It is then up to the member to either investigate alternatives and decide on an appropriate strategy or to get advice about it. To put the burden of developing “universal default strategies” in a fund is a very poorly thought out requirement. The Trustees are burdened with a trying to find a single strategy that would be applicable to a new fund member who could be 20 or they could be 60. They may be financially aware or totally ignorant of financial matters.
To climb up on my soapbox and stack it even higher, it is my thought that the only default fund (whether in awards or not) should be one provided on a nationwide basis by a government run fund – such as the “Future Fund”. That would average the costs over the greatest number of people, leading to greater scale benefits. The core strategy could then realistically be a guaranteed crediting rate (whether based on cash or a targetted return strategy would be up to the fund Trustees and advisors).
If a national default fund like this were made available (and it must only offer one single investment strategy) then it is up to the individual to look at alternatives to that default. They can then look to their particular industry funds or broader funds of other industries, employer funds or retail funds. The key advantage is that it would be easier to ensure that money was only transferred to another fund after appropriate disclosure of risks and alternatives.
At least, those are my thoughts on the matter.
Feel free to comment or criticise.