Banks-owned retail funds are masking sales techniques as choice and offering hundreds of investment options to “bamboozle” customers, but less is best when it comes to investment choice in superannuation, according to Industry Super Australia (ISA).
In its report, ‘Options to Lose – How Sales Became Choice’, ISA said its analysis of 10 years’ worth of official data from the Australian Prudential Regulation Authority (APRA) showed the best performing super funds had a main default investment option and a small number of other investment options.
In contrast, the worst performing funds were public offer, mostly bank-owned retail funds with hundreds of investment options.
ISA public affairs director, Matt Linden said: “Sales techniques, slickly marketed as ‘choice’, seem to be designed to bamboozle consumers and certainly don’t appear to be improving super nest eggs”.
Running business models that overcomplicated investment options and lowered investment in better performing assets led ISA to question whether retail fund trustees were meeting their fiduciary duty act in consumers’ best interest.
While bank-owned retail super funds offered 651 investment options per fund on average, they underperformed not-for-profit funds, which offered an average of 16 options per fund, by around two per cent per year on average over the 10 years to 2016, ISA’s report said.
The report said not-for-profit super funds leveraged the scale and long-term investment horizon of super by pooling members’ savings and investing as wholesale institutional investors.
“For-profit retail super funds treat members as discrete investors, investing their savings in intermediated investment vehicles with highly liquid investment options that are typically more expensive and access a reduced universe of assets,” the report said.
Linden said consumers did not have time to assess hundreds of investment options in the complex super system.
“Just as it does in private health insurance, sales-driven ‘choice’ in super is bamboozling Australian consumers.
“It appears for-profit funds are ‘clipping the ticket’ by capturing margins at multiple points of the investment chain including extracting fees when changing options,” Linden said.
APRA regulated super funds collectively offered 28,000 investment options in 2015, ISA said.