If we're truly going to serve consumer best interests, industry funds must work with financial advisers.
I've started to embrace working with industry funds over the last few years. In my opinion, they are a good choice for clients who need a straightforward superannuation solution.
However, it's not always easy doing business with them. Long call wait times, a lack of access to client information, low investment transparency and an inability to charge through these funds are just some of the issues we come across on a regular basis.
I think it's time that industry funds embraced and supported external financial planners and addressed these issues.
Over the past decade, I feel that an 'us versus them' mentality has been prevalent in the advice world when it comes to industry funds.
I think this has mainly come from planners who use a percentage-based fee model, where their business depends on them convincing clients that their approach or portfolio was better than a particular industry funds.
I believe this, because I used to do this. I guess that's why I'm not a big fan of percentage based fees anymore, as it's hard to argue that there's no conflict.
I still come across many planners today who are threatened by industry funds and they are all working with a percentage of AUM fee model.
Switching to a fixed fee model a couple of years back has made us product neutral and we are now free to recommend any superannuation products we believe are suitable, including industry funds.
Unless a client has a larger super balance and needs more investment control and flexibility (e.g retirement bucket strategy etc), I prefer to recommend industry funds. It enables us to effectively outsource the superannuation investment strategy and focus on other matters that may be a higher priority to the client at that stage of their life (especially younger clients).
Here are some road blocks I'd like to see addressed by industry funds, so that more planners can start to embrace and recommend them.
Excessive call wait times/no platform access
In the lead up to June 30, my staff spent up to one hour waiting to make simple inquiries on client contributions that were made with a couple of the larger industry funds.
An online adviser portal would have saved both of us a lot of time. I applaud those funds that have already launched or are planning to launch an adviser platform.
Anti-financial planner attitudes
I recently had a disagreement with an 'advice manager' at a certain health-focused industry fund about a fee we wanted to charge a member for advice related to their fund. They weren't happy with the paperwork we submitted.
We got into a bit of an argument and she proceeded to tell me how their internal advice team was superior. After the phone call ended, that manager also actually called my client to complain about me. How's that!
I think that internal financial planning within industry funds is a little conflicted, as there'll always be some product bias and limitations on advice.
I respect and want to work with industry funds that are happy to engage full service external planners, regardless of whether they have their own internal advice team.
I've never been comfortable leaving more than $500,000 in a member's industry fund account, as there isn't a great deal of investment transparency in what you're actually investing in. We generally prefer Wrap accounts or SMSFs for clients who are age 50 or over with more than a $500,000 super balance. At this age and balance, there is value in having greater control over asset allocation and investment selection. Clients also appreciate the transparent structure, which generally becomes cost effective at this entry point (indirect cost ratio's become comparable with most industry fund's balanced/growth offerings). I would really love to see greater investment disclosure from Industry funds, rather than just vague asset allocations and investment descriptions (private equity etc). This would make both the client and the adviser more comfortable with holding large balances in these funds.
Distorted risk profiles
Is there a universal definition of a balanced fund? I think most retail balanced funds are about 70/30 growth/defensive whereas most industry funds seem to be 80/20.
So is the 'Compare the Pair' campaign really fair, or a bit misleading? If I take a new client through a risk tolerance test and their profile comes out as 'balanced', it's funny when I have to explain that this industry fund's balanced option is too aggressive for their balanced risk profile.
On the flip side of this is a particularly large state-based fund which takes a more conservative approach. Currently its 'aggressive' option is 30% cash and fixed interest? I think there's too much manager discretion here. If we choose aggressive, give us aggressive.
I want to be product neutral, but sometimes I feel that I am showing bias toward the industry funds that allow advice fees to be charged through super.
To make advice more affordable, especially for younger people, planners should be able to charge relevant fees through a member's super fund.
I appreciate that certain industry funds are embracing this. It allows planners to engage younger members on the benefits of superannuation, help them understand investments and also get them contributing earlier. The onus is on the adviser to justify that fees are reasonable and meet sole purpose.
Moving in the right direction
I want to give a shout out to funds like Sunsuper for being forward thinkers and launching an adviser portal, as well as allowing external advisers to charge appropriate fees through their fund. Although the offering is limited, it's a big step in the right direction. I believe AustralianSuper recently launched a service and Energy Super is also looking to do so.
My view of industry funds has changed over the years and I'm now happy to recommend them. I'd just like to see the above issues addressed so it's easier to do so.