Are super funds dropping the ball on switching advice?

Financial advisers have used responses to a Money Management survey to accuse industry funds of not doing enough to stop members making inappropriate investment switching decisions amidst the current market volatility.

Asked what they believed was the worst thing clients could possibly do amid the current market volatility, a number of respondents pointed to client confusion around industry superannuation funds which were labelled ‘balanced’ but were, in reality aggressive.

They claimed that, on top of this, members were switching to cash on the basis of intra-fund advice and effectively crystallising their losses.

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One adviser said that selling and moving funds to cash or defensive assets in the current environment represented a serious mistake.

“They are crystallising losses, whereby, if invested correctly they will still get good dividends, that are much better than interest rates, from shares,” he said.

In fact, the overwhelming sentiment from advisers was that the last thing clients and superannuation fund members should be doing was switching to cash.

The comments from survey respondents came against the background of confirmation last week by industry fund UniSuper that more than $2 billion had been the subject of member switching the face of the current market volatility.


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I think you will find that members have switched to cash and then told their fund/adviser, its what I have seen anyway.

Then they were never really clients any were they.

welcome to the new world of advice.. where big companies hide behind their general information disclaimers and ordinary Aussies make bad mistakes.

this wouldn't have happened if financial planners and financial planning were encouraged.

85% of Australians use the services of a tax agent. financial advice is equally complex.

not only has research proven that advised clients do better over the long term than unadvised clients, advised clients also have peace of mind, but that is also why consumers who have experienced working with a financial planner give us such a high satisfaction rating.

why are we then subject to so much constant harassment by the media, the government and regulator.

but now you want me to work pro bono?

No advice vs advice. Compare the pair

Mislabelling is, by far, the more serious issue as it puts their members at serious risk and distorts investment performance. I’d love to see a ‘compare the pair’ ad on that subject.

I'd love to see a class action on the subject. Ideally by Slater & Gordon. Union cannibalism would be fun to watch.

I wonder how those who switched to HostPlus are feeling at the moment? Their balanced investment option includes ZERO cash, ZERO fixed interest and 7% credit. This will be a huge wake up call. Kenneth Hayne made a big mistake by not properly investigating industry funds. Now they are asking for a government bailout to avoid freezing redemptions. Forget about the fox in the hen house, the chickens are now coming home to roost!

I wonder if those people will be seeking compensation from their Barefooted adviser who recommended such a dodgy outfit. Many who followed his switch recommendation also lost valuable auto accepted insurances at the same time.

I have even seen some advised clients follow the advice of the Barefooted one and lost fully underwritten insurance inside super that was cheap and better than the auto accepted stuff at the industry funds.

Saw a deeply concerned investor yesterday who followed the Barefoot, they're not happy now they see the risk. ASIC also promotes him, it has to be said.

well, that follows then that a class action should commence against the barefoot guy and join ASIC in it too. they should recompense consumers for their financial detriment

Amazing stuff really, and the client has no one to blame than themselves. A shame really, people listen to the media, ASIC, Barefoot and Industry Super Ads - all painting a picture of the promised land with low fees, outstanding returns for 1,3,5,10 etc year and if it falls apart, not one person can be held to account out of those sources. Can't make this stuff up.

"Old Kenny Hayne was biased from the start.....and he wouldn't shake my hand when I held it out so I would look like I was I control of made me look bad in front of my mates..........but he was in control of things all along and it now seems he had an agenda to persecute advisers and destroy their businesses and reputation.
He was a nasty man old Kenny, because he wasn't honest in his approach as he knew exactly where he was going to end up all along.....he knew his answers before the questions were asked.
....and the worse thing is we agreed with him because that was what we needed to do to look good.
It was nothing to do with what was right and what was wrong....but it made me feel bad when he didn't shake my nice warm hand" made me feel like crying......and look at all the damage his recommendations have caused now ....and for no consumer benefit at all.....this has been a very big mistake "
Fried N' Burger.

You can lead a horse to water but you can not make it drink ...... then ..... we need to ensure that we operate within the regulatory constraints which is near on impossible in the current 'FASEA' environment. This stuff remains unresolved but effectively put on hold as the world deals with other priorities. Difficult times for all; Stay Safe and in the right head space !

If members switch funds off their own decisions then so be it. That's the environment that is being fostered right now and over the past years of regulation.

Care should be exercised in commenting on performance of individual funds. Hostplus Balanced has seen reductions in pricing that reflect a standard "balanced" allocation - even though their actual allocation does not resemble anything like a standard balanced fund. While the underlying position makes me uncomfortable, the fact is that member's accounts have not fallen as much as the asset allocation would suggest should have been the case. Potential risky arbitrage opportunities is a discussion for other times.

AustralianSuper's unit pricing appears to be more transparent - or at least, a better reflection of underlying asset expectations. Their Australian Shares option shows significant deviation from market risk, while the Balanced option has fallen significantly further than a standard balanced portfolio would suggest should have been the case. Again, it is dangerous to draw any conclusions from this, as the unit pricing is subject to a host of vulnerabilities and timing issues.

The key problem in relation to switching is the intersection of immediate responses (as a member would expect) and "best interest" which a trustee is beholden to adopt. What can a trustee do to ensure a member makes an informed decision under prior, informed and appropriate consent?

As for advice, I would suggest it is too early to make calls on whether those who moved to cash are better or worse off.

This tumult could move to a prolonged recession and further falls, just as easily as it could move to a form of recovery. While long term investing history would suggest it's best to not cash out in a heavily reduced market, the circumstances that make it right or wrong are heavily case dependent.

Which is why it is surprising that regulators and legislators are not moving to streamline advice delivery at this point in time.

There are many issues here. The most obvious relates to "intrafund advice". Any appropriately qualified adviser should be able to provide severely limited "intrafund advice" to any super fund member with appropriately reduced requirements for investigation and paperwork.

AustralianSuper doesn't use unit prices they use crediting rates, you sure you are looking at the right numbers? Their performance since the crash started seems to be more in line with other "Balanced" aka Growth options. Same with their Aus shares, it is down slightly less than the ASX200. Should do the calcs based on the daily crediting rates found here

Hi Tom. Yes, that was the source for my calculations. The Balanced fund returns from 19th February to recent lows is in line with growth/high growth funds. It is certainly not in line with what any person on the street would consider “balanced”. I have always found it difficult to understand why fund performances are not readily comparable in the public sphere. For any non-industry member of the public, it is almost impossible to make sense of the returns from their fund relative to the broader marketplace. And most funds are trying to “manage” the public perceptions by not focusing on the short term results. While that is entirely logical, it degrades the actual emotions many people are trying to cope with. Unfortunately, marketing imperatives override member considerations in these areas. And i’m not talking about AustralianSuper here (which is a fund I quite like) - I’m referring to most super funds on the market today.

I don't understand their International equity option using those daily rates, peak to trough fall of only 13%? shows a positive 12 month return to end March, not sure how that could be correct.

ignore that, hedging

Hey Michael, I don't understand why you think AusSuper is down by more though? if I look at Hostplus unit prices from 19 February to 31 March they are down 15.97% but AusSuper Balanced is only down 14.29% over the same period. But yes i agree that performance should be readily comparable, everyone should move to unit pricing and publish daily unit prices on their website along with interactive tables/graphs to show long term performance to different end dates.

Hi Tom,
Perhaps I am misreading the data? From the downloaded cumulative rates sheet, I have a value of 141.1744 for 19th February and 105.8815 for 31st March. IF this is correct (and I'm open to being shown to be wrong) then that is a fall equivalent to a 100% Australian shares index portfolio. Hopefully, I am simply reading the figures incorrectly.

Ah, yeah it is easier to look at the daily crediting rates and calculate it from that (just start at 1 and apply the daily rate to it). The cumulative rates are a cumulative return from 1 July 2008, it's not a unit price so it starts at 0%... i really don't understand why they have it on their website, it is of no relevance to most members. Because they are actually a cumulative return ie those numbers actually mean 141.1774% return to 19th Feb and 105.88% return to 31 March, you can't just divide one by the other, you have to do (1+105.8815%)/(1+141.1774%). I had to ask them about this myself. This just highlights why funds should be forced to show things in a consistent way. They have the data on daily basis, they just aren't presenting it in an understandable way.

Thanks for that, Tom. It makes much more sense now. It will be interesting to see how all of this plays out - an extended recessionary period is likely to see a marked change in valuation basis for many unlisted assets (purely a personal interpretation), and valuation changes in super funds holding those are also likely to be abrupt, as seen in the recent revaluations for AustralianSuper, Hostplus and others.

It could still turn out that those moving to cash were doing the right thing. We planners take a longer time frame as a standard reference point, but we are all trained to understand clients feel loss more than gains, so I think the job of broad membership trustees is just going to get harder.

Thanks again for the clarification.

There is an added problem for super funds who don't charge individualised buy/sell spreads. We've seen spreads on a large number of investments rise during market turmoil. For funds who average buy/sells across members, the members staying put are coughing up the buy/sell for the ones moving.

Picking the right time to cash out is only half the puzzle. You also need to correctly pick when to buy back in, to come out in front. This is where most "timing the market" strategies fall down.

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