Bird? Plane? No, Superhubris!

Pension funds in Australia (or “Super”, in the vernacular) are, obviously, a big deal.

To a large degree, they are a captured market as legislation requires all employers to contribute 9.5% of salary into an employee’s chosen fund.

Typically, there isn’t much movement between funds, you are offered one when you start work and many people don’t pay attention to which is good, bad or mediocre.

Similarly, and like passive investors the world over, people don’t tend to pay much attention to what investment choices their Super fund is making on their behalf. One occasionally hears horror stories about people close to retirement in 2008 suddenly discovering they were all in on USA CDOs.

One such Super fund is Hostplus, the “industry” fund for people working in hospitality. Obviously, one doesn’t have to sign up to Hostplus, but I assume it’s one of the main options offered when you start a job.

Hostplus’ members are worst hit by this virus-induced recession and presumably most likely to want to take advantage of the changed rules allowing early access to $20,000 of their money.

Hostplus have a problem though;

They’ve slipped a clause into their product disclosure statement preventing members from withdrawing funds. It’s not clear whether this is even allowed under legislation such as the Corporations Act, but regardless, it’s a bad precedent and one that won’t give people much comfort in the security of their pensions.

There is a some mild amusement to be had at the directors’ expense (well, ultimately the members’ expense, poor bastards);

This from those heady days of January 2020;

Bill’s Opinion

What follows is not financial advice, and you should never seek financial advice from pseudonymous bloggers on the internet.

However if you are young enough for this current crisis to not completely destroy your imminent retirement plans, may I suggest taking a far more active interest in the following elements of your finances;

  1. Is a single managed fund really the best option for you, or should you consider diversifying across funds (e.g. via a self-managed fund)?
  2. If you are staying in a managed fund, are you really invested in diverse (asset class and geography) assets?
  3. Are the management fees fair value?
  4. How quickly can you pivot your investments if required?
  5. How is your financial advisor paid and by whom?

Feed the birds, tuppence a bag“.

4 Replies to “Bird? Plane? No, Superhubris!”

  1. I stopped making contributions to super after being overseas long enough to realize that most advantages dry up once you’re a non-resident.

    When I was young, every McJob made me sign up for a different fund. When I was a swim teacher and lifeguard, each aquatic centre had its own fund. No choice.

    When I got a real job, I was able to choose from these funds and roll it all over into the least shit one. I now have most of my investments outside it.

    The trouble is, you need a lot of financial literacy and basic intelligence to understand the options and make the best decisions for your own situations. The three times I got financial advice, it was so poor that even I could figure out that it was poor. One fellow insisted I needed to take out margin loans in order to get anywhere – in 2006.

    All Australians are forced to make complex investment choices but probably 60% are unqualified to do so. It’s like asking patients to self-diagnose and tell the doctor what treatment to give them. The MySuper default option helps a bit, but the Hostplus debacle shows it’s still not enough.

    1. Mine got switched to SMSF last year and sent offshore to enable access to less parochial asset classes.

      Really glad I did now!

  2. This is a worthy subject. A lot of much smarter and well paid people than me have looked at it and remained confused (or perhaps simply conflicted). I am no apologist for industry super funds, but they contain less conflicts than most of the retail super funds. Some of these were worthily illuminated by the FS Royal Commission, but not all. Many conflicted practices remain, and the industry would benefit from ongoing wholesale change in staff. Many should go back to selling Fords, or Ssangyongs.

    I might have made this comment before, but the worst thing this sector did was to try and dress themselves as advisors. Had they stayed as salespeople, they would enjoy the same reputation as now (alongside used car salesfolk and journalists) but have less of the undeclared conflict.

    You don’t go to Nissan and expect to be recommended a Mercedes. A lot of people hate this comparison, but it seems to reflect industry structure. You should also be compensated for your time and the quality of your advice, not the size of your client’s fund. If they are correlated, it is because of the quality of your advice.

    To your questions.

    Is a single managed fund really the best option for you, or should you consider diversifying across funds (e.g. via a self-managed fund)? Not usually – but industry funds are not generally a single managed fund. Many are fund of fund (outsourced to many), with a portion or all internally managed but diversified in respect of asset class. The latter is increasing, but each investor has a risk choice. So single fund, but not single fund manager. If you prefer.

    If you are staying in a managed fund, are you really invested in diverse (asset class and geography) assets? Possibly, depending on your choice. See above.

    Are the management fees fair value? Good question. Always hard to tell, given some performance fees remain hard to determine, particularly in fund of fund arrangements. Rarely in Australia.

    How quickly can you pivot your investments if required? Used to be quite often. Restrictions may increase in times of stress such as now, and sometimes this is so you don’t liquidate your investments all at once to seek another manager, or simply switch within the same fund to all cash and crystallise a loss. Conflicts arise, poorly declared.

    How is your financial advisor paid and by whom? The financial advisor is always paid by the investor. You just won’t be able to tell how most of the time. If it is not paid by the hour, like a lawyer or tax agent, you are not talking to an advisor, you are talking to a salesperson. Easy.

    I am sure you know most of this, but it was interesting to me to type out.

    In other news, the only team that had been growing at my employer over the last six months has been the remediation team for the now sold/closed financial advice business. I heard them complaining that bonuses were unlikely at the end of the year. This was before COVID19, which should see major bank cash bonuses shrink materially even for revenue/non-loss making business units. Perhaps good evidence for how deep the bonus cancer runs in financial services, when you can expect one for compensating clients for the garbage advice some sly prick driving an Audi R8 gave you ten years ago.

    And if Nikolai is reading this – did the clown advising you recommend a platform with that? Because he was missing a trick if he didn’t. Also – 60%?

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