The ‘dirty secret’ of super funds

It is the “dirty secret” of the superannuation industry that most super funds cannot beat passives, according to AustralianSuper, and funds should not spend members’ money trying to do so. 

Speaking at the Australian Institute of Superannuation Trustees (AIST) conference, Mark Delaney, chief investment officer, said many funds found it difficult to beat passive funds.  

“The dirty secret of the super industry is that most funds don’t do much better than the passive portfolios,” Delaney said. 

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“If we took the median asset allocation of SuperRatings and then gave them all the index returns, we will get roughly what the median fund earns. That’s been the case for a long time so a lot of people would be better off taking a median asset allocation and indexing everything.” 

He said that overall returns were the most important thing for members and that if managers could not beat these, they should not be wasting members’ money. 

“The overall return is the thing that matters to members as that is what they will have to live on in retirement so we have to generate the biggest returns we can for members using both strategies and value add to do so,” Delaney said. 

“The most important thing for them is to make sure they are in a high-returning fund. How the money is made is less important than how much money is made. 

“If you can’t make more money than passive then why should you spend members money. It’s not your money. Your job is to get the best outcome you can with their money.” 

Asked by moderator, Elysse Morgan, over what timeframe super funds should be judged by members, he said: “If you are no good [at beating the benchmark], then you should quit. That’s a question for pension plans, if you have a manager on their books who hasn’t beaten their objectives over five years, would you still hire them or would you terminate them? Very few would keep them after five years. So how should they be treated themselves?” 

He said fees on super funds were too high but was doubtful whether Your Future, Your Super reforms could have an impact on reducing them. 

“Fees have come down a lot but what we should be doing is maximising returns for as little a fee-load as possible and I think we’ve been pretty good at it,” Delaney said. 

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I'd be interested in seeing a good investigative journalist really look into the Industry Superfunds - at the backroom deals, the jobs for the boys, the relationship with the unions, the millions of dollars that go to fund the Labor party and at the billions spent on marketing and sponsorship. If that money was redirected to members, I'm sure they would enjoy above-index returns. Industry super got hit with the equivalent of a wet lettuce leaf out of the Royal Commission while advice has been decimated. They won the war with the bank-owned corporate superfund sector which has also been decimated. Their compare the pair campaign has to be one of the most success marketing campaigns in history with advisers smashed for earnings fees and commissions from super yet the industry funds charge members to run their intrafund advice models whether they use the service or not. An adviser must go through a highly regulated and time-consuming process to recommend a superfund to a client yet a union shop steward simply has to say to a subbie, open up an industry superfund or you're not coming on site. Hats off to Industry Super. You've outsmarted and outplayed everyone and really have proven to be untouchable.

So Anon why are you not also focusing on retail super funds using the same benchmarks as you espouse for industry funds? We know those retail super funds are definitely not beating the indexes while charging higher fees. So why do you keep hitting the retail funds with a wet lettuce leaf? The bank-owned corporate superfund sector do not run pair marketing campaigns for a very good reason - a wish to keep their performances out of the limelight.

A person does not have to join the employer recommended super scheme nor have to be in the industry super scheme. What is said in this story about index funds doing well means that people can put together their own super fund. They are not required to buy one of the off-the-shelf packages. But they should do so with the help and expertise of a professional financial advisor!

Banks are doing buyback because they cant find anywhere to make investments in themselves or in Australia. A pity because their internal systems could do with some financing to fix the above mentioned transactions.

The big four Australian banks have not been at all successful playing outside their banking boxes. Their overseas forays have all ended in disaster and likewise with their forays into wealth management. These wounds were self-inflicted and all done by themselves without any outside intervention least of all by unions or industry super funds. On top of those disasters the banks have been found wanting and fined for all those other transactions found out by the Royal Commission and under the Anti-Money Laundering and Counter-Terrorism Financing Act. And there's more about which you should know if you are in business.

Why do you care about intra-fund advice not being used when you support bank-owned corporate superfund sector? People who use or don't use intra-fund advice are not going to be in one of your bank-owned corporate superfund. Hopefully some use a professional financial planner.

Hedware 3rd September 2021
"Why do you care about intra-fund advice not being used"

Aware Super 3rd September 2021
"Lower fees^ means more for you
The fees you pay can make a big difference to the lifestyle you enjoy in retirement" Aware Super September 2021

Yes - you make a good point. Excessive fees just eat capital and income. It doesn't matter whether it is industry funds or retail funds, the fees charged here are about double in comparable schemes in other countries. Many products are just boilerplates. Australian clients are paying an Australian tax on their savings.

Rushing to union super defence yet again, Dick? You do get so riled up whenever anyone writes a comment pointing out their faults.

Of course, being a union superfund investment manager and owning a foreign listed share in a toll road company and yet in your fund listing it's value and returns in excess of 3 times what the actual listed share is worth is all kosher, right?

Or building in Sydney CBD and rather than going for a competitve tender submission, hiring a construction team that has quoted in excess of double of the lowest tender and then having the budget blow out by another 3/4 and drag an extra 2 years (union workforce) and then listing it in the fund valuations at the exorbitant cost of construction rather than market rate, is also all kosher, right?

Can see why you love them so much. With fabricated returns like that, of course their 'compare the pair' propaganda will look amazing.

Notice you don't dare discuss the aspects of "the backroom deals, the jobs for the boys, the relationship with the unions, the millions of dollars that go to fund the Labor party and at the billions spent on marketing and sponsorship. Industry super got hit with the equivalent of a wet lettuce leaf out of the Royal Commission".

You have a predilection to avoiding any known factual issue within union funds, Hedware.

And my guess is if you've even got the guts to reply, all you will do is finger point to retail world and try to point out faults there rather than address the union fund issues.

Here here, well said.

In comes the propaganda unit from Australian super. Youare 100 percent right. You will find Jimmy Hoffa first.

My Australia Super account has an overage 10 year return of over 13% and managed 26% last year. I manage the allocations but beats commercial funds and index funds hands down.

Actually I out preformed index by 10 percent last year

FFS... Be a real planner, ETFs, monitor your clients position daily, pull out if they are going to get pregnant, re invest on the rise, stop collection of fees whilst watching YouTube

A few questions:

If this is the case, then please explain to me why you have allocations to private equity and property? Why not just be index across the board?

"How the money is made is less important than how much money is made." Then why do you have a whole section on your website about ethical investing? Why have more than 1 fund? If clients don't care how, then they surely don't care about asset allocation and risk. After all, as you say, it's only about return.

You also boast about your size allowing you to invest in Southern Cross railway, yet any investor with a few dollars can buy an index. So you are saying your decision to invest there was wrong?

I look forward to the next update when AustralianSuper announces all investments will be index, if not then perhaps that is your 'dirty secret'.

Brilliant response. There are so many holes in Mr Delaney's argument, I don't know where to begin. I'd also like to know how it is unlisted infrastructure fell only 5% during the Feb 2020 Covid selloff when listed infrastructure was down 30%+. A miracle. That 5% was regained in a couple of weeks too (miracle no. 2). Ponzi schemes will always outperform.

'How the money is made is less important than how much money is made' ? hmm, that's true until it's not, because the approach taken was not sustainable, so how it was made is extremely important to understand if it can persist. Either he's taken out of context or this is a really crazy thing to say. But it does support my theory, that these guys know they can pad and bolster unit prices at pretty much any time so him saying that makes sense - don't worry about how we come up with the prices, just the money's being made ok, nothing to see here.

Yes I wondered about these words as well. He should hope they were taken out of context - draft stuff if not.

Indexing is becoming cult like.... as if it is some ordained strategy of clerical wisdom.

Where is the consideration within indexing to price discovery?

Is price discovery being influenced by indexing strategy inflows/outflows? If it is then we have some very serious problems moving forward.

At what point will we have entered a world where inflows and outflows of the dominant strategy will have significant determination on price due to liquidity factors?

There will be smaller and smaller consideration to an opinion of the the actual value of the underlying asset.

How is this a good thing?

Moo.... Moo.... Herd left, herd right, herd in, herd out. Everyone does the same thing to the same inputs because no one needs to make a decision because the price is always right.

What happens if the others whom the index strategy relies on turns out to be largely themselves?

Efficient markets... No way.

Yes Max you have picked a couple of weak points with index funds (but there are a wide and diverse variety). Index funds operate to cold hard statistics. You dont need Vanguard to tell you this. Just ask a statistician.

Herding is a psychological attribute and index funds use the statistical process of averaging the means. Active fund managers are human and so psychological biases, etc come into play. There's plenty of herding going on in the non-index side of investment.

Fair value of the underlying stock is a weakness of index funds. But long duration investing, big indexes and astute diversification can ameliorate herding and valuing. There's still a good place for active value and growth, thematic and smart beta products, but in small doses. Private equity and infrastructure (which are alway derided here) also give means to reduce product correlation with index funds.

Hopefully they'll all move to Passive management because I can they compare the performance of my existing clients portfolios to those funds and it's an easy explanation as to why you'd have rocks in your head to recommend these poor returning, terrible service Industry Super funds. Just subscribe to Lonsec, Mornginstar, Mercer and you'll be in front over the longer term....a joke that these so called "experts" can't achieve.

I had $195k when Covid hit. Moved it to mining shares, 12 months later it was
$295k. Moved to SMSF And dumped the lot into crypto in April this year. Nail biting time but now it's $550k and looking like better growth on its way for the next year or so.

I'm the first to admit that most of this was luck, but I'd not have my money anywhere else at the moment.

Could my money in Aus super have done that?

Really not likely at all.

The outcome of an event does not remove the foolishness of the original decision...

In this instance, the foolishness was waiting a single second longer than I needed before taking my money out of "the system" and managing it myself.

Hopefully this is just a troll,

It's really not. I've been disgusted with the way that my super has been hit hard ever single time we have a pullback, however its growth back has always been slower than market. Every transaction is loaded with fees. Super is a great idea turned into a massive cash cow for the finance industry. it's not the direct fees, it's all the additional fees paid to the people that are given your super to manage. These are all hidden from the public and aren't provided in any statement on our accounts.

It's really not that hard to do research, and before you troll me about following every shill out there. I have been very successful.

The crypto space is a minefield, but if you approach it with the age old lens that 95% of businesses started will go broke in 5 years, it's really not that difficult to work out. you can find the companies with history and strong fundamentals. You can follow trends. I managed to get out within 20% of the top in May, and got back in within 20% of the bottom in July. I've learnt so much along the journey and will do a lot better in the next major pullback.

The thing about cryptocurrency, there are no backroom deals. The blockchain is completely transparent. you can see how much money is moving between exchanges, between wallets, moving into this coin or that and where it's coming from. There are no backroom deals like there is in the normal financial markets.

Everything is auditable and available publicly.

I'm an amateur, but learning quickly, and have far outperformed you guys in the last 4 months. By orders of magnitude.

I know you are going to say come back in 5 years and talk. the truth is, that if you said that five years ago, only buying bitcoin, I'd be up 339% pa. and I wouldn't even bother to have this discussion.

Good luck to you all.

Noshy I admire your get up and go, well done. We dont all have to invest the same way, I have some clients with crypto, only small amounts though, but good on them for having a crack. You seem to be a very smart person that knows the risks. I put in a few bucks just for a scratch around, got doge coin at 1.5 cents so ive made a bucket load but its only small.amounts. We as planners need to understand this market, the issue is we cant advise on them, yet, so lots of advisers will just turn up the nose. Its ok for people to have a crack here and there as long as they undetstand the risk which obviously you do, there is no need for others to be so holier than thou. Best of luck.

Thank you :-)

I have only 10% of my portfolio in crypto, and there are still a few years yet before I can touch it. So it's not such a huge risk for me.

I agree with everything you've said, it really should be only a portion of any portfolio. I think that it's a really great hedge in case it does take over the world though.

If you look at the Raiz allocations, they've had to separate their crypto returns so they aren't on the same scale as everything else, because they'd extend across the page.

If you are looking, do a little research on infrastructure tokens on the two rapidly growing ecosystems, ADA and Solana. These two have had great gains, but the large returns will likely be from the companies building on their ecosystems. Again do your research and make sure that the management team has a good track record, and they have a good business case. The White papers for these companies are all publically available, and it's important to at least understand what they are trying to achieve, and that it makes sense to you. If you can't understand it then the team aren't going to be good at selling their product and will likely fail.

Good luck!

It's a brave new world, the El Salvador government has even made it legal tender and given every citizen the equivalent of $30 USD in Bitcoin.

You literally wrote just above saying you dumped the lot into crypto, now it's only 10% of your portfolio? which is it Elon?

My super isn't my entire portfolio.
Isn't that obvious?

Noting you make stuff as you go. That was a quick rebalance from all into crypto to only 10%. So you understand the features of a calculator?
Quoting el salvador leads me to doubt your knowledge on crypto and that countries position. It certainly doesn’t affirm the case for crypto, maybe the opposite.

Adding additional information that does conflict with the prior statements is not "making stuff up as I go".

Throwing additional scorn without adding a single fact just confirms your troll status.

Can't say I'd expected better, but I did hope I'd find slightly more intelligent repartee.

Seems the lowest common denominator of dullard is all pervasive.

Never mind.

You actually did change your story. So you had no ground of defence. Your not a advisor or experienced to understand. The intelligence or la k thereof is seen in your contributions here.
You can’t make statements in the run and change, not good to misrepresent.
Why the troll reference? You surely can’t be serious of you understand such a term. The fact was you misrepresented your investment and as such you are the troll trying to push a sector which is certainly not ethical behaviour.
Me thinks prior criticism of several points previously made stand true.
As for the balance of your comment, a picture of your description is in your mirror.

Apologies buddy,

It's obvious English isn't your first language.

You missed the boat mate n made enough errors and misrepresentation. Obviously this is not a forum for the inexperienced. Such a response as you did is meaningless and lacks maturity. Stick with your sand pit. Don’t try giving advice on social media a d changing your story there either. Please do yourself a favour and stop the immaturity

hi ya noshy,

am into property and getting heavy into debt. is this is a cool strategy mate.

whaddaya think please adwise.

i am keen on da property

My advice to you would be to leave the financial advice game and find something more suitable.
It's obviously a little outside your abilities if you're so threatened that you need to lash out at someone sharing their experiences.

Good on ya Noshy for having a go.....unfortunately the PI Market, legislation and a lot of other factors and for good reason don't allow advisers to have an absolute and arbitrary discretion over clients funds and invest like that...for every 1 Noshy there are usually 1000 losers....I will say your view on fees are spot on...Hesta $1.50 per week....they've got a lot to answer for.

Thank you. I do understand that I’ve been very lucky and that with a supportive partner fairly high up in the finance world it’s been much easier.

We have financial advisers for a very good reason. This stuff is very hard and complicated, and adding all the rules and regulations over that makes it even more of a minefield for the average person. And for every 10000 like you there is one like Melissa Caddick keeping our need for industry regulation high.

It’s only time. Crypto will take over from the legacy financial world and your job will change forever. It’s people like yourself with an open mind that will eventually win because it’s not death and taxes that are inevitable anymore, it’s death and change.

Quite risky and to end in BC is a little hard to grasp.
I was also fortunate but with years of planning to do so. I moved my smsf into pension phase in late august last year. With 708 benefits etc my lithium exposure was looking sad from past highs, but very optimistic for short to medium term, n so with the max cap into pension phase for two funds and a average return since then of over 500% as one did over 1000%, my pension now looks quite handy at many times over the cap. I struggle with why people invest without any fundamentals.

Bitcoin is a little difficult to comprehend. but it's here to stay. Nearly half of US finance executives are expecting it (blockchain) to take over as the new financial structure of the world within 5-10 years. google "Nearly half finance execs say blockchain could herald “the end of banking as we know it”: Study"
I would like to point out that it's been the least risky investment over the last 13 years that the world has ever seen. Volatile if you try to trade it and I wouldn't recommend that. But if you just dollar cost average in, it's the safest investment you'll ever make. and by far the best investment you'll ever make.

*but that's just personal experience, not financial advice.

I’ll stick with my higher returns and leave the “believers” to survive in FOMO.

Some great comments above except one I note in defence.
Love to see a exposure of industry funds. Things don’t add up and I can’t even get a benefit for all this advertising they do and never a seat in the corporate box at the footy for they are only reserved for the mates, not the funders (members)
Why is there returns sometimes so great? Selective rolling periods?
Why would a balanced fund perform better than a moderately aggressive or aggressive fund in a positive growth period? It only signals one thing, and that is to support the fund that is advertised based on its return.
Why does the balanced fund in super perform better than the balanced fund in pension phase at times? That can be answered the same as the one above. The flagship advertised fund has to perform and this looks to be at the expense of other funds for a particular superfund.
Look back from 2006 onwards n note the discrepancies and potential fraud that could be exposed in some industry funds.
When your in a glass house with shaky foundations and rock the “ boat”, all hell should break loose but sadly there is some protection that has to cease.
A lot to declare and disclose Mr Delaney, along with your fellow industry fund cohorts

That is a pretty massive call to suggest they a funneling money from high growth options to balanced options just because the balanced option is the one more commonly looked at. I haven't seen any evidence of this over the years and would require many people and auditors turning a blind eye to blatant fraud. You think that the hundreds of investment staff at AustralianSuper would keep quiet about that? There's a lot of conspiracy theories floating around on these forums with very little fact to back it up. We're talking about one of the most regulated industries here and you think everyone but you are in on it?

How is advertising your fund "only" costs $1.50 per week regulated? How is selective marketing of time periods to advertise returns "regulated"... How is a fund that invests 90% in growth assets and 0% cash can call itself "Balanced" being regulated? Super fund taking to Court or fined by APRA since inception = Nil.. When it comes to regulation those regulators are like a soggy wet sandwich. Useless.

There is a big difference between marketing and what the other commentator is suggesting. I agree that the regulator should get involved and put rules in place about what different options can be called. They did this with cash but no other option? why they cared about the least risky option and did nothing about the others astounds me. Check out Catholic Super's latest names... they have Balanced Growth, Balanced Plus and Balanced options... I'd be surprised if any ordinary person could understand the difference based on those names or which option it should be compared to. As for time periods, of course it is going to be selective, you can't show every time period in an ad???

Industry funds tend to only give a FY return as they only used to value their funds once a year. Anyone rolling over during the year would only get a guestimate. This could be generous to the departing member and at a cost or remaining members or the opposite. It has made true comparisons difficult over the years when the industry fund would give a member a balance but drilling down, it’s admittedly just a estimation.
Back in the 90’s there was a particular two companies balanced funds. One was around 80% growth a d the other around 60%. Often they more conservative one did outperform the higher growth one in this case. But using generic names can be misleading

I should have added to my last comment. You mentioned “of course it’s selective as they can’t show every time period “.
I feel you missed the point. They find the best that suits them. I could pick any time period to compare. They may focus on last five years or two or one. Whatever is more appealing n shows the story they want to present. Obviously in 2012 you don’t want a five year return advertised do you.

You may call that a massive call. It wasn’t however at a major meeting of the industry after the GFC to look at how we could act quicker for client needs. I’m also not suggesting it was AS either. It’s easy to establish when you compare returns/unit prices etc and between super and pension. Who knows how many people have been involved? Have you been to any of their headquarters? Would you find a small office of 13 representing three different funds? My discovery on visiting funds was due to tpd claim. One person only in charge of claims. Bad luck when he is sick or on holidays or you missed the quarterly meeting of trustees to accept a claim that the insurer has accepted. Maybe few have seen the insures I have.

Noshy might get a gig at one of these funds managing some money

I've worked in banking, finance, gaming, telco and insurance, developing software during my newly completed career.

Without doubt, the finance and banking sectors are the absolute worst sectors to work as they seem to attract personalities that given a little financial success turn into obnoxious, self important, arrogant people that think they are the next messiah.

I'd rather be thrown into a pit of vipers. At least you know where you stand with the vipers.

But I love the sentiment :-)

It does sound like you don’t know what you want to do and that you can’t hold down a job. Did your past employers recommend the career changes ? Thankfully I’ve never had to get a job. Ever.

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