About one in 10 of all respondents is considering switching their super fund, but the potential for churn is highest among retail fund members at 23%. This compares with just 7% of industry fund respondents, 4% of those in public sector funds and 9% of corporate fund members.
So what is influencing this dissatisfaction with big-name funds such as AMP, BT and Colonial First State? Retail funds lag on most of the criteria we measured, but particularly noticeable was dissatisfaction with fees, investment performance, customer service and, ironically, financial advice provided by the fund. One respondent expressed disappointment with his retail fund and adviser’s “guarded approach to advice for members, unless it follows from an extensive fee; their commission-earnings basis; uncertainty over whose interests they are primarily managing (their own business or their members’), and advice being ‘off the shelf’ rather than truly tailored for the member”.
Another said: “I think the retail super industry offers poor service, average returns and an excessive amount of fees deducted. I am very unhappy with my fund, and only a lack of time at present stops me from changing.”
Of course, satisfaction surveys gauge perceptions of performance and are influenced by customers’ expectations. Actual performance and fee levels, for example, may differ.
Retail funds rank worst
Retail fund respondents are 28 times more likely than those in industry funds to have been introduced to their super fund by a financial adviser. Half of retail fund members use advisers as their primary source of financial advice, with a fairly even split between those using corporately “aligned” and independent planners. This is a much higher reliance on advisers than respondents with industry (16%), public sector (28%) or corporate (31%) funds.
Many advisers are likely to recommend retail funds, as their higher fees are often paid as a sales or advice commission. Funds that do not pay adviser commissions, such as industry funds, are far less likely to be recommended by most advisers.
Another major factor influencing recommendations is ownership. Up to 85% of advice companies are owned by the financial institutions behind retail funds, and many advisers tend to steer people towards their parent company.
There are signs that retail funds are getting the message about customer dissatisfaction. In July 2010, AMP moved to a fee-for-service advice model ahead of an upcoming regulatory ban on commissions from mid-2012 (see Financial advice minefield). AMP also recently launched a simple low-cost super fund it claims is cheaper than industry funds.
Government safety net
Some of the problems identified in relation to superannuation fees, performance and adequacy are addressed in the Super System ('Cooper') Review, a major government report released in July. It recommends the introduction of simple, low-cost default funds (“MySuper”) for people who don’t make a choice. According to Treasury estimates, this proposal, if implemented along with other efficiency improvements, would cut the average member’s fees by about 40%, lifting their final super balance by about 7% (or $40,000) after 37 years in the workforce.
Most rely on super
The pie chart below shows 68% of respondents consider superannuation their main savings vehicle for retirement. The remaining responses were fairly evenly divided between investment property, the family home and other non-superannuation savings and financial investments. “Property is the main vehicle to fund my retirement and other life goals,” said one CHOICE member. “My super fund will provide a buffer and life insurance services.”
Roy Morgan Research
In May 2010 Roy Morgan Research released its report Superannuation and Wealth Management in Australia, based on interviews with over 50,000 consumers per annum. The report analysed the proportion of investors that were very” or “fairly” satisfied with the financial performance of their work-based or personal superannuation, on a five point scale. The conclusions are broadly consistent with our survey: satisfaction was highest with self-managed super funds, followed by (in this order) public sector, industry and retail fund managers. AMP had the second lowest retail fund satisfaction score, just ahead of AXA.