Amid the Federal Government’s release of the regulatory underpinnings of its controversial Your Future, Your Super legislation, a South Australian academic researcher and qualified financial planner has raised serious questions about the validity of the member “outcomes assessments” being published by superannuation funds.
Mark Bastiaans, a masters research candidate at the University of South Australia, has undertaken research which concludes that the MySuper Dashboard ‘representative member’ investment return used by many superannuation funds “does not in fact accurately ‘represent’ what individual members actually earn”.
“In fact, the representation is highly inaccurate,” he claims.
“The reason why members will experience different outcomes is due to individuals account characteristics, in particular their account balance, presence, and timing of transactions and the impact different fee structures used by super funds (flat dollar and percentage based),” he wrote.
Bastiaans said his findings were based on a study that used de-identified confidential member level data (consisting of transaction dates and categorised amounts) and Microsoft Excel’s ‘eXtended Internal Rate of Return’ (XIRR) formula to calculate a money-weighted personal rate of return for 53,770 members invested exclusively in the MySuper product of a single Registrable Superannuation Entity (RSE) between 1 July 2018 and 30 June 2019.
Bastiaans’ findings revealed the range of investment returns was 98.06% (minimum -63.90% and maximum of +34.16%).
“Using the MySuper Dashboard ‘representative member’ investment return of 7.05% as a benchmark, 84.2% of the study sample received a personal rate of return below the MySuper Dashboard investment return,” he wrote.
“The evidence from the study points to the fact that the MySuper Dashboard ‘representative member’ investment return does not in fact accurately ‘represent’ what individual members actually earn.”
“Those at the lower end of account balance earn significantly less than the ‘representative member’. Within this cohort are the young, paying insurance premiums, and those in regional and remote locations,” Bastiaans wrote.
Comments
Correct and thank you. The actual members return could be vastly better than the report returns, due to timing, cash flows etc- but if the fund at the headline point in time return is under benchmark for a period, this member would be stopped from adding to what he feels is a good investment and as he is ahead of the benchmark, precludes him from staying ahead or attempting to at his choice. The proposed system simply makes everyone index, and takes away free choice, it could not get any more 1984
I've posted about this on this forum a number of times now. Industry funds in particular cannot produce a performance report for an individual members' account. I've confirmed this by calling Australian Super and asking exactly that question.."if a member calls asking for a performance report for their account, can you provide it?", the answer was no. The biggest super fund in Australian cannot provide a member with a performance report, what a joke, and now we have legislation that is going to prevent super funds from accepting new members based on performance comparisons. Unbelievable.
Many people will argue that time-weighted vs money-weighted returns don't differ that much, that's rubbish, as highlighted by the figures quoted in the article. Covid creates a great example of this, lets say an Aussie Super member panicked in April last year and went to cash (which thousands did) but then as the market recovered they shifted back to the Balanced (really Growth) option late June. They'll get their annual statement which tells them they are invested in the Balanced option and go x% return, when the reality is they could have return of up to -15% depending on timing. 10 years down the track they'll still be getting reports with 10 year performance figures saying they got x% return but it's completely inaccurate.
If you have clients who want to shift to an Industry fund I'd recommend you get your head around this issue and explain it to them. The returns industry funds quote are irrelevant to the individual member.
Time weighted returns are needed so that people can compare the performance of one fund to another.
While a personal rate of return would be a nice to have, I don't see why it is really that important? Sure you could use it to show someone that they shouldn't have switched options at the wrong time but what other use is there? I don't think I have ever looked at or cared about what the money weighted return of my account was.
As for the whole representative member balance of $50k, it's a fair point that the experience of someone with $10k is very difference to someone with $100k but at some point you have to draw the line in the sand somewhere so that people can actually make sense of these assessments and $50k balance is already used in fee tables and many other places.
What use would an outcomes assessment be if they said "As a member you may have experienced -63.9% return up to 34.16% depending on your transactions throughout the period" that doesn't help anyone.
Retail funds that run a Mastertrust structure can produce all these reports, I can show a member what they have made on their account since inception at the account level and how the manager has been performing..
Retails and industry funds both operate at as a master trust/pooled account but retail funds provide reports and some how industry funds can't.... why?
Thanks for the reminder.
I logged in to check my aussie super acct. On investment performance screen it says I've done over 8% over 10 years (I started it last year) !
I then checked my balance= $303, and see in my transaction history about $9 to $11pm comes out as admin fee.. Nice return on investment, for them!
Where are you Xavier? You should be on to this.
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