How spooked super fund members crystallised their losses

Thousands of superannuation fund members who reacted to the early market volatility generated by the COVID-19 pandemic by switching their superannuation investment options simply crystallised their losses.

Superannuation funds have revealed to Federal Parliament that in the space of less than a month they lost billions of dollars in value, a good deal of which has since been regained.

An examination of evidence produced for the House of Representatives Standing Committee on Economics showed that the critical period during which superannuation fund members were most exposed to crystallising their losses was between the last week of February and the third week of March.

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It shows that superannuation funds lost as much as 20% of their value in that one-month period, with thousands of members making the unwise and dangerous decision to switch their investment options, thereby often crystallising their losses.

What is more, the data provided to the Parliament shows that many of those who rushed to switch during this multi-billion downturn missed out on the opportunity to ride the recovery in the market which saw funds return a positive 2.7% in the first two months of the new financial year.

In the case of Australia’s largest superannuation fund, AustralianSuper 76,042 members opted to switch in a 21-day period during which the fund acknowledged that $34.2 billion had been stripped from the value of the fund.

AustralianSuper also reported that six trustees had opted to switch their investment options along with one executive, noting that a switching ban was “communicated to all Access Persons two weeks before quarter-end”.

It said Access Persons were “persons responsible for investment decisions or who may potentially have access to, or oversight of, investment portfolio and security selection”.

AustralianSuper reported that its highest valuation was on 20 February when it stood at $194.9 billion and that by 23 March this had dropped to $160.7 billion.

AustralianSuper said that the percentage value between the highest and lowest valuation for the fund during the period was 17%.

A similar story as been portrayed by AMP Limited with respect to its superannuation funds which variously declined between 13% and 17% over the period with its AMP Superannuation Savings Trust declining by nearly $7.9 billion between 31 January and 31 March from a high of $54,879,532,585 to $47,001,911,089 or 14%.

The AMP Retirement Trust declined by 17% from $16,199,468,289 to $13,525,073,540 over the same period.

The numbers of members switching for AMP was significantly lower than for AustralianSuper, with the firm reporting 91 member switching decisions in February, rising to 233 in March.

For AON, the situation was similar with the company reporting that funds under management in its superannuation fund were highest on 20 February when they stood at $5,662,429,609.55 before falling to their lowest on 23 March when it fell to $4,275,354,200.56.

It said the volume of switching of investments between funds between the highest and lowest valuations was $104,686,453.40 representing 924 switch instructions over 786 members.

The switching at the height of the market volatility occurred despite widespread warnings from financial advisers urging clients to avoid being spooked and to regard superannuation as a long-term investment.

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you'll never create a structure that stops ignorance

I believe the vast majority of investment option switches to Cash or similar in order to protect balances but subsequently crytallising losses were instigated directly from super fund members who either did not have a relationship with a financial adviser or alternatively made a decision without first seeking advice.
Many Industry Fund members that either do not access advice either through Intra Fund advice or comprehensive advice options simply panicked at the wrong time because they didn't discuss investment risk, asset allocation, market cycle history and gain an in depth understanding prior to making a decision.
No only that, many of these same members may have then accessed the 2 withdrawals of $10,000 without seeking advice thereby significantly increasing the negative account balance impact on top of the crystallised losses.
This is because many people do not seek advice.
I can only assume the vast majority of financial adviser across the country had discussions with clients during this period in regard to assessing their current position and providing the client with appropriate information on which to base an informed and rational decision. One would assume the majority of adviser's clients most likely made a decision to hold their ground, reduce pension draw down to preserve capital and then review asset allocation and investment risk profile post market recovery or when suitable.
For many it well may have been the ideal time to contribute a lump sum into their superannuation account throughout March in order to purchase investments at a reduced and falling price.
This article defines the importance of adviser relationship compared to mass superannuation funds with hundreds and hundreds of thousands of members with no advice relationship and the ratio of in house advisers to member numbers being only a token offer at best.
Interesting that of all those Australian Super members who made their own decision to withdraw their funds and/or make investment switches without seeking advice, they were all being charged a fee for the access to advice.

well said

Get this statement - "AustralianSuper also reported that six trustees had opted to switch their investment options along with one executive, " these are the ones who are supposed to be making rational decisions for their fund members......this alone warrants further investigation.

what did they know about property devaluations for the unlisted? get to cash before the devaluations occur. Still a rational strategy as the revaluations couldn't have been fully run through the system yet surely.

This is an important point. I don't think i had any clients reduce growth exposure during that period. Many spoke to me about it and my reviews at that time were ROA no change. (some would argue i didn't do anything for clients and should refund fees).
Any clients that didn't call during that time received my emails outlining that we have always expected these events and not to panic.
Even clients I receive a commission for didn't panic and sell because - And here it is - when clients 'think' that we as advisers are looking after their assets, they allow us to make the decisions. They 'think' my adviser will call me if i need to change, so i don't need to worry. This is a relationship that will be lost in the future. Those clients who no longer see my name on their statements will now be worrying about what to do with it like the 76,000 Aus Super members who sell at market lows. (Dis Aus super have 237 times more members make the worst possible decision and sell at the worst possible time in March 2020 compared to AMP??)
That 20% loss will hurt much more than the odd year that these clients may pay a FFNS if they didn't feel the need to come in for a review.
Mr grandfathered revenue. You have been paying me $600 per year for 10 years to call me when you want. You haven't called for 4 of those years so you have wasted $2,400. BUT in March 2020 you kept your $100k invested and didn't lock in a $20,000 loss. I think you are in a better position.
V Mr Aus Super. You haven't paid $6,000 over the past 10 years to have a direct phone line to the same adviser that you could have called to ask any question. But in March 2020 you did sell your balanced fund and lost $20,000 because you were worried.
Same age, same income, 1 client pays a commission to an adviser and every few years calls the same adviser to address any concerns they have and is $14,000 better off over the past 10 years.
Although not that simple, and there could be a better way, it is a discussion that needs to be had. You know part of the alternate considerations / trade offs for advice (or legislation)

And yet this is ASIC's preferred method for consumer to get. Not one of my clients that pay me an ongoing fee sold their growth assets. Many told me that "you told me that this would happen one day, and so we'll stay". I had a couple of voices from the past, being no ongoing advice was provided actually ring me and told me they switched 100% to cash, and was this the right thing. They were often people who I could not work with ongoing. What do I do in that situation....charge them $3,000 + for another SoA saying switch back? The value of the ongoing relationship is priceless. Yet we have ASIC driving us out of business so that Australians just end up shelling out more in age pensions...and driving everyone to get advice from industry super funds.

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