Hello,

My name’s Simon. I’m 34, and I’m a white collar worker in the retail industry earning just over $50,000 a year. I’ve got $50,000 in my super account, which is invested in the balanced option of my current fund. I’m also covered for death and disability insurance of $100,000.

I’ve just changed jobs, and my new employer has given me the option of joining their fund (which is with a master trust) or choosing a fund of my own. I’ve done some research and narrowed it down to 3 options – the company’s fund, an industry fund that specialises in my industry and a retail master trust I had recommended to me by a financial adviser who’s a friend of mine.

There’s not much to choose between them on investment performance, judging from their recent returns. And, as far as I can see, they all have very similar investment setups with lots of specialised managers and a consultant who looks after the investment mix.

So if I assume they’re all roughly equal on investments, what I want to know about first is their fees. Because I’ve seen the advertisements and I know that lower fees means more in my account at the end of the day. This is what I managed to find out by using AppleCheck.

Well, that’s an eye-opener! I was sure the industry fund would be the cheapest, but it looks as though the company’s master trust is a really good deal.

I showed the table to the financial planner, and he pointed out a couple of things to me. The first was that, while the retail master trust looked a lot more expensive than the other two, one of the reasons was that it included the cost of financial advice. There’s a commission built into the fee that is supposed to pay for regular advice each year.

The way the commission is calculated is a bit complicated because it depends on what contributions are made and how my account grows, but apparently it works out at about 0.56% of my account balance. I thought:“Well, if I need advice I’m going to have to pay for it somehow so that would apply with the other funds as well.” So to make the cost comparison fairer I decided to separate out the commission.

I realise, of course, that with the retail master trust I’m paying the cost of the adviser’s commission anyway, whether I like it or not. The fund doesn’t refund it if Idon’t want or need the advice. So I suppose it’s up to me to make sure I get some value for it, although I’m not sure I’m really going to need it every year. It’s more likely that I’ll need advice from time to time, when I’ve got a major decision to make or there’s a change in my circumstances.

Talking about this, the adviser made the point that the master trust made his job easier by providing all the information he needs and in the format he asks for it. And with them I get to choose my own adviser. Apparently with most industry funds there are only certain advisers they’re prepared to deal with. My adviser friend says he’s had dreadful trouble getting information from some industry funds, who just don’t seem to want to deal with people outside their circle. But he also says that not many industry funds are on advisers’ approved lists, so I guess it’s a bit of a two-way street.

The next thing we looked at was insurance. My adviser said that I was typical of many people in that I was underinsured. With a young family and a hefty mortgage I should have death and disability cover of at least $300,000, he said. So we looked at what it would do to my costs if I increased my insurance to that level.

I found this quite interesting. Firstly, because the retail master trust’s insurance was cheaper than the others, the gap in costs had narrowed. Also, by diverting more of the contributions to pay the insurance premiums, the adviser’s commission went up. Apparently, they get a higher commission on insurance than they do on money invested. So while the advice may be quite appropriate, it does end up costing me a little more. He also said we should check out whether I get automatic cover and the terms and conditions because not all insurance is the same.

My adviser friend was getting quite animated by now. He said: “All we’ve done so far is look at the situation now, and certainly your employer’s master trust is looking pretty good on costs. But you should also be thinking ahead. What would happen, for example, if you were to leave your employer? Say you wanted to go self employed. Would you be able to stay in the fund and, if so, what would the fees be then?”

I must say I’d assumed the fees were fixed, but on investigating I found that was far from the case. When we ran the numbers for being a personal member in the same fund I got quite a shock. The fees and insurance premiums were substantially higher, so the picture looked like this.

From being the cheapest, my employer’s fund had gone to being the most expensive. I can’t imagine my account would suddenly become that more expensive to administer, so there must be some other reason. The only one I can think of is that as an individual you don’t have much bargaining power, and since this is a commercial fund they reckon they can make more profits once you’re on your own.

Apparently the same applies if you retire and start drawing a pension from the fund. In fact, my adviser got hold of the following table from Chant West, which is based on the average fees for employee members, personal members and pensioner members across different types of funds – corporate master trusts, industry funds and public sector funds.

Very interesting, I thought. With industry funds and public sector funds there’s no difference in fees if you’re a personal member or an employee. The fees do increase a bit for pension members, but then I suppose there are more transactions to process. But with the corporate master trusts the fees jump by over 55% when you stop being an employee member. How many people are aware of that, I wonder?

(By the way, I was interested to see that public sector funds are getting a mention and being researched by people like Chant West. I have a friend in the public service who tells me they offer great value – maybe even better than industry funds. I gather some of them are opening up to people outside the public service. That might keep a few of the others on their toes!)

“Costs are important but they aren’t everything,” my adviser friend said. “You’ve also got to look at what you’re getting for your money. Member services – the whole experience you have with the fund – that’s where the master trusts are often ahead.”

I can see what he means. Super’s getting pretty important these days and in a few years my account will be worth tens of thousands of dollars. I think I’ll be taking a lot more interest in it from now on.

So what sorts of things would I value? Firstly, I’d like everything to be explained clearly, and to be able to educate myself about financial matters. If I can understand my super better, and how it fits in with my finances generally, then I’ll be able to make the right decisions about contributions, investment, insurance and so on.

I’d like lots of that material to be available online, too, so I can dip into it when it suits me. I deal with so much of my finances online these days, I’m surprised all super funds aren’t more active in that area. It wouldn’t be hard to set up podcasts or video feeds of information about topics of interest, I’d have thought. I’m far more likely to take notice that way than by reading a brochure or sitting through a seminar.

And I’d like email alerts if there are major changes I ought to know about, like in last year’s Budget. Even if they just had a link to somewhere I could find more information, that would help.

It’s not just education I’d like but also personal advice when I need it. It seems crazy to me that super funds are so limited in what they can talk to me about. I need someone who can tell me whether I’m better off putting more into super or using the money to pay off my mortgage or to put a deposit on an investment property or to gear into shares. Also, if I’ve got investments outside super they should surely be taken into account when I decide on my investment choice in the fund. I understand that some funds do this, but not many.

If I can’t get that advice from my super fund I need to get it from elsewhere. I’m prepared to do that, but whichever fund I’m in should be prepared to cooperate with my adviser if I give them the authority to do so. If I’m going to pay for advice I want to be able to decide who I get it from, not have the fund decide for me.

I know some funds allow you to take the cost of advice about super out of your account, but most don’t, other than master trusts. I think that should be universal. I don’t have enough free cash to pay lots of fees, and if it comes to a choice on how I spend my money I’d probably do without the advice. I’d be far more likely to get the advice I probably need if I can pay for it out of my fund.

Summing it all up, this has been a very instructive exercise. It’s taught me firstly that all funds have their good and bad points. You can’t say that industry funds are better than master trusts, or vice versa. It really is a question of ‘horses for courses’.

If you’re offered choice of fund, you can’t just look at the information they put out and make a decision on which one is best for you. You have to personalise the comparison by making some realistic assumptions about yourself – such as your account balance, future contribution levels and investment knowledge. To get a fix on insurance, too, you need to take account of your age, the type and level of cover you need, your occupation and even whether you’re a smoker or not.

All those things make a difference. So does your likely career progression. Are you likely to stay with your employer for a long time or will you be changing jobs and moving in and out of the workforce? If you’re closer to retirement, are you likely to want to draw a pension from the fund?

I realise now that there’s no way I could make a properly informed choice without some guidance. I’m lucky in that I have a good financial adviser to point things out that I never would have thought of by myself. I also realise the value of a comparison tool like AppleCheck. It allows me to compare funds side by side on all the criteria that are important to me.

It has been an education to me, and I now have a much better idea of how this complex industry works. If you’re a fund executive reading this, I hope my experience has been of some value to you. And no, I’m not going to tell you which fund I’m going to choose!