What is the difference between Industry and Retail super funds that those ads always refer to? If industry funds always “perform better” why would anyone go with the other one?
Top answer provided by:
Dean Hutchins
In recent years, Retail super funds have been on the receiving end of some heavy criticism about the fact that they pay commissions to financial advisers, unlike Industry super funds.
Traditionally this has meant that retail super funds have been more expensive, but is not so much the case in today’s market. There are vast differences between the retail funds in the market, however some are priced competitively to that of industry funds.
Generally Industry super funds offer a smaller variety of investment options than many of the retail funds. Retail funds may have over one hundred investment options to select from. This variety of choice means that a financial planner may be able to tailor an investment recommendation that specifically caters for their client.
A superannuation fund is only one element to consider.
The advice element is critical to consider. If using a quality financial planner, they are working together with you for the long term and meet regularly with you on your journey. They will make recommendations that may save you tax, increase contributions to you super and inevitably enhance the fund’s value at your retirement.
The cost of not receiving advice may be higher than the cost of the fees the planner charges. There are strategies that exist, such as the government co-contribution or the transition-to-retirement options that people in Industry super funds, or sitting idly in retail funds, are missing out on because they don’t have someone annually re-evaluating their circumstances.
Fees for advice are generally charged in addition to product costs. Generally, planner fees can be charged to retail super funds whereas Industry funds may not permit this resulting in fees having to be charged directly to you. However a number of planners do continue to recommend Industry funds if that is the most appropriate solution.
In terms of “performing better,” it should be noted that past performance is not indicative of future performance. Just because a fund has had a good year or more, doesn’t provide a crystal ball for the future. Investment markets fluctuate for many reasons and an investment manager may or may not make the right decisions year to year.
Where do self-managed super funds fit in?
Self -managed super funds (SMSF) are a different model to Industry and Retail super funds. The fund is established by the execution of the trust deed and it’s purpose is to provide retirement benefits for it’s members. Retirement benefits can be paid out as a lump sum or pension allowing freedom and choice of investment in property or direct shares.
Advantages of SMSF:
- Provide greater control/flexibility
- Strategic planning opportunities
- Greater investment choice
- Transparency
- Direct property
- Asset protection
- Family fund (pool resources)
- Cost advantages
Disadvantages of SMSF:
- Time burden as accurate records must be retained
- Costly for small balances
- Penalties for non compliance e.g. you must understand trustee responsibilities and investment restrictions.
This is where a SMSF Specialist can assist with servicing the above.
SMSF are ideal for higher fund clients e.g. $300,000 or more due to the financial planning and audit fees.
I’m a 33 year old tradie and have just started my own business and am wondering about Super. What would be best for me?
Self-employed people often earn a decent income while working, but without the benefit of employer-paid superannuation contributions, find they have very little money to live on in retirement.
Many self employed people neglect super contributions only to find after 10 or 20 years they have nothing and find it difficult to catch up prior to retirement.
Superannuation is a tax-effective investment for retirement savings. Contributing to your super can also reduce the tax on your current income.
Depending on your business structure as a guide, you or your business may be able to claim a tax deduction of up to $30,000 annually for contributions to your superannuation fund (or $35,000 annually if you are aged 50 or over). It's an easy way to trim your tax today while building a nest egg for the future.
Another benefit of super is you can pay for various insurance covers through it such as Life, Total & Permanent Disability and Income Protection.
As a new business owner battling the challenges of a consistent income during times when cash flow is tight, the premiums can be funded from your existing super balance – this way you don’t lose the valuable protection these provide.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
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Comments17
"Bryce Good response mate. Was wondering which retail fund you are using !! Cheers Mike"
Mike 02:55 on 27 Feb 16
"The question "If industry funds always “perform better” why would anyone go with the other one?" is not a valid question because it is based on the false assertion that industry funds always perform better than "the other one". The retail fund I've been recommending since 2006 has outperformed every single industry fund my clients have come to me with, in every timeframe (1 year, 3 year, 5 year, 10 year, since inception), after product and adviser fees (my adviser fees are generally 1.1% p.a.). I know that whilst past performance is not an indication nor a guarantee of future performance, I have also gone to the extent of working out that out of my 1600 clients, my average client will be around $100k better off in retirement in today's dollars, if historical performances continue. If you're an adviser and you are recommending funds that are consistently performing below industry funds you need to seriously think about changing the products you're recommending. No fancy product specification or service is worth $100k... "
Bryce 12:07 on 15 Feb 16
"Well written Dean"
Shane 22:16 on 12 Feb 16
"Andrew - listen to Dean Hutchins and Mark Rattigan. Sound advice."
Terence 21:57 on 12 Feb 16
"Very misleading ads. Don't buy into the archaic industry super funds. "
Aninymous 21:41 on 12 Feb 16
"I have to agree with Mark. Industry funds have terrible administration. Feels like they still use technology and platforms from the 90s! In addition to this, there asset valuations are very opaque and filled with illiquid assets."
Jason Mills 21:39 on 12 Feb 16
"Dean, Couldn't have put it better myself. Thank you"
Sally 20:03 on 12 Feb 16
"I would like to add a comment in regards to fee and performance a couple of points : 1. As with anything in life you "usually" get what you pay for. So the fact that not all funds are as cheap as Industry funds does not mean there is anything wrong with them. As discussed most retail funds have a greater range of investment options which means you can choose investments that are more in line with your strategy rather than just be in the standard option this can reduce risk or add additional returns , many work better from a capital gains tax point of view and allow this to be better managed as well as other features and options. It is important to get the one that is right for you. A Landcruiser is not as cheap as a Hyundai Excel but one provides a lot of added benefits for the price that some people need and want. Finding the right super fund that does what you need it to do is important. A cheap option is good for low balances and people with limited needs but wont suit everyone. 2. Newer Super funds have been developed with modern technology and are therefore cheaper to run than older funds (such as Industry funds and older retail products). Therefore they will continue to drive efficiencies and add benefits over time whereas this will be too expensive for the older products to deliver. Hence why there has been so much consolidation of Industry Funds over the last few years. 3. In regards to performance, the comparisons are being done on standard investment options and don't consider the benefits of having a more actively managed asset allocation or investment strategy. Many investment managers are currently being hurt by market conditions whereas some thrive in this environment. If you don't have the choice though you are stuck with one option of managers. As Dean said financial advice is more than just picking a Super fund. In fact these days this is a very small part of the job as they are all getting closer on price etc. Our job is to understand our clients needs and goals, work out what investment strategy will suit the outcomes they are looking for and help educate and coach their financial behaviour to help them manage their money better, pay off debt quicker, start investing smarter, keep them accountable to their goals and make adjustments as economic and legislative changes happen. That is what you pay for if you want advice not picking a super fund!"
Mark Rattigan 14:18 on 12 Feb 16
"The comment that some are priced competitively, is excellent those that are not are typically the older platforms that have not kept pace with the market pressures. "
David James 12:26 on 12 Feb 16
"Great Response Dean. Good to set the record straight for consumers"
Nick 12:26 on 12 Feb 16
"I agree with Andrew. Its back to maths really - compound interest. There is no way you can catch up right at the end. I have a lot of single women who just have nothing in super and the older ones sometimes even have debt still and they are mid 60's. Whilst working they are living off $60K plus a year. Retirement is very daunting for them. Time goes quicker than we think and you wouldn't want to be young and starting your business to end up relying on the pension. Lots of small businesses fail unfortunately - diversify your risk is the key here."
michelle 12:22 on 12 Feb 16
"I find insurance via Industry Funds expensive in many cases given that they are commission free. Even though the insurers are the same the contracts within funds are not necessarily the same as those offered elsewhere by the same insurer so be careful"
allan 12:09 on 12 Feb 16
"I've had an adviser for 3 years now and he adjusted my portfolio last year to avoid the bloodbath we are seeing in the markets at the moment. i think he is worth his weight in gold."
Andrew 12:06 on 12 Feb 16
"It sounds like a justification for the existence of advisers. There is so much choice out there you need to pay someone to navigate your way through it. Who came up with this system? Compulsory super may be needed, but it's just another way the banks get to take a clip out of everyone."
Not convinced 11:50 on 12 Feb 16
"This is a great response from Dean. The only thing I would add is to further reiterate the comment about self employed people not adding to super and just how important this is. If rather than being self employed you worked for someone else, you would receive a guaranteed 9.5% of your income into super. If you are self employed, you need to (at least) put yourself in the same position as an employee so that you are not caught short on super. Plus in the (hopefully unlikely) event of your business getting into financial trouble in - say your 50s, your retirement will not be decimated by an insolvency event. Sorry to be negative on this, but it happens more than you think. Protect yourself!"
Andrew Lyon 11:47 on 12 Feb 16
"The adviser says "There are vast differences between the retail funds in the market, however some are priced competitively to that of industry funds" - only "some" which means a lot are not priced competitively. "
John 11:41 on 12 Feb 16
"Very well written responses Dean, couldn't agree more with you"
Maciej 11:30 on 12 Feb 16