Rebuilding your super

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05.Risks of industry funds / Member comments

Hidden risks of industry funds

Are the returns reported by not-for-profit industry funds really as strong as we’re led to believe? When Chant West consultants looked at the performance of “growth” funds, which have between 61%-80% in property and shares, it found industry funds reported 6% higher returns than retail funds in 2008. One theory, which is now being examined by the regulator APRA, is that the rosy returns could be propped up by industry funds’ heavy investment in direct property, unlisted infrastructure and private equity.

As unlisted property is valued every three months at best, industry funds’ 2008 figures may not reflect the full extent of the commercial property market’s slump. In contrast, retail funds invest in property trusts listed on the Australian Securities Exchange – the value of trusts changes every day (although the trusts’ underlying property investments are less regularly appraised).

Industry Fund Services, a group representing the industry funds, defends the figures, claiming listed property trusts tend to be more highly leveraged (they borrow more) with an additional layer of fees. “Often their investors have sought to sell their holding, further pushing the price down,” says a spokesman. “That’s not the case with unlisted property, where several industry funds group together to buy a property for a long term.”

Member comments – Bad advice and high fees

Many CHOICE readers told us they felt burnt by the financial advice they’d received, especially when the dubious recommendations and poor investment performance came with high fees. Some respondents took matters into their own hands and benefited by going against their planner’s advice.

  • I wonder why I bother to make contributions when they’re always gobbled up in fees, which are calculated as a percentage of my balance. Over the last five years I contributed $29,500 to my retail super fund. The admin fees were $11,280 and I paid $15,183 in adviser fees, so after tax and insurance premiums were deducted I made no net contribution to super. There has to be something intrinsically wrong with such a system.
    – Name withheld.
  • I changed my investment option in September 2008 against the advice of a financial planner. In hindsight the planner was wrong and I did the right thing by converting to the cash option against the advice.
    – Rick, Victoria.
  • I retired during the downturn, having made the decision 12 months before, and was unable to reverse it. However, the situation has got worse, since I now see financial advisers are taking their fees out of the account. What gets me is their fees are the same no matter how successful or unsuccessful the investment.
    – Peter, Queensland.
  • A financial planner I approached for advice about super wanted to take fees of $3500 per annum to manage my modest account. Superannuation is far too complex to manage yourself and far too expensive to be guided by those in the industry.
    – Ann, Victoria.
  • The financial adviser did not want me to change over to cash. They failed to return my calls on three occasions over a period of four weeks. This was to arrange and confirm an appointment to speak with them and seek advice.
    – Max, ACT.
  • I was preparing to invest a considerable sum in my self-managed super fund prior to the current crisis. Suspicious of the sub-prime issues in the US and how they would affect global markets, I held off on investing for three months, against the advice of my financial adviser. I chose to invest in medium-term cash deposits and have not suffered the losses experienced by others.
    – Chris, NSW.
  • We were in a balanced option in August 2008 when we started our allocated pensions. We suggested to our adviser that we should take about half out of super to buy a home unit. We were advised not to do this. We lost about $60,000 before we changed to the cash option in November.
    – Geoff, Queensland.
  • At the end of November 2008 we invested a lump sum into super, on advice from a financial adviser. We’ve since lost $14,000 from the principal amount. Shouldn’t we have been advised differently? We’re 60 and this is all we have.
    – Susan, NSW.
 

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