03.Could my fund go bust / balance fund
Could my fund go bust?
It’s possible, but relatively uncommon. One risk is with corporate defined benefit super schemes, which are only as strong as the parent company.
Generally, super fund trustees have fiduciary responsibilities to manage members’ money in their best interests, and while the trustees of regulated funds are licensed and supervised by the Australian Prudential and Regulatory Authority (APRA), even funds with licensed trustees can fail. Limited compensation may be available if this happens; to check your fund is registered, check the APRA website
Sometimes, super funds operate illegally and outside of regulation. In 2007, the Perth-based Strategic Capital Super Fund (SCSF), which hadn’t been approved by APRA, suffered losses as a result of allegedly fraudulent activity and theft from the fund. And while legislation provides financial assistance to funds that have suffered losses due to fraudulent conduct or theft, there’s no compensation for bad investments. The federal government paid a financial assistance grant of nearly $1.5 million to SCSF members to cover 90% of the alleged fraud losses, but didn’t cover another $9 million lost due to poor investments by the fund.
Should I stay with my balanced fund, as my financial adviser suggests?
The conventional message from many in the industry is to stick with your long-term strategy despite the events of the past two years, but financial planners CHOICE contacted were divided on this issue.
“If the appropriate steps were taken to ensure the portfolio chosen for you is aligned to your personal circumstances, timeframe and risk profile, then it is probably a good idea to follow the advice provided,” says Wilson Luna of Sage Financial Services, an authorised representative of planning company Financial Services Partners.
“Sticking where you are could be very appropriate advice or very inappropriate advice – it depends on where you are, where you want to go, and what you want to avoid,” says adviser Paul Gerrard.
“You should hug your adviser for encouraging you to do the right thing and preventing you from crystallising further losses,” says Andrew Carra, an authorised representative of Garvan/MLC Financial Planning. “A well-diversified portfolio and patience is your best defence during a bear market.” He says hiding out in cash while you wait for the recession to end could mean you miss cashing in on the recovery, which some economists are tipping to start in late 2009 or 2010.
Queensland planner Bruce Baker says it’s important investors are comfortable with both the risks and potential benefits of any strategy their adviser puts forward. “Be wary of investment dogmas that might work during a bull market, but perhaps not at other times. For example, the dogma of ‘time in the market rather than timing the market’ promoted by some fund managers can be dangerous, but it works during a bull market.”