Most workers in Australia can choose which fund will receive their employer's super contributions, but how do they compare one fund with another? That is the purpose of our fund ratings. By applying our knowledge and experience of funds, we compare them in a way that is both fair and rigorous, and on an 'apples with apples' basis.
The result is a set of ratings that encapsulate our view about the quality of each fund we rate. We express those ratings in terms of Apples. Funds earn a rating ranging from 5 Apples, our highest grade, to 1 Apple, our lowest.
Highest Quality Fund
High Quality Fund
Fair Quality Fund
Low Quality Fund
Lowest Quality Fund
Our ratings are based on information that is either publicly available or is provided directly to us by the funds themselves. Where necessary, we modify that information to ensure fair comparisons. We give each fund the opportunity to review the information we use for its accuracy.
In rating super funds, we apply a methodology that has been developed over more than 20 years. This focuses on five main criteria: investments, member services, fees, insurance and organisational strengths.
We determine a score for each of the main criteria and then weight these to provide an overall rating for the fund. The chart below shows the main criteria we use and the weights we assign to them.
Investments are obviously important and account for 45% of our overall rating. When we rate a fund's investments, we assess the quality of the fund's investment governance, its in-house investment team, how it works with its external asset consultant (particularly for research), and the structure of its investment portfolios. If it does these things well, it is likely to have strong, long-term performance.
Most funds offer a range of investment options to choose from, but we concentrate our research mostly on the multi-manager options because that is where most members are invested. The chart shows what we take into account. It is worth noting that past performance only accounts for 15% of the total score for investments (which equates to 6% of our overall fund evaluation).
While investments carry the highest weighting in our ratings process, we believe member services are also vitally important. For that reason, they account for 25% of our overall weighting. When we assess a fund on member services, we look at what it does to drive greater engagement with members to equip them to make decisions about their super that will improve retirement outcomes.
We focus on digital engagement (member online, member app, calculators and education on public website), communication materials (member statement, campaigns and newsletters) and financial advice services (scaled and full advice). When we assess the quality of digital engagement and communications sent to members, we consider its effectiveness in driving member understanding and action but we do not assess for accuracy or consistency with fund policies and we do not assess marketing collateral.
The best funds offer services that help their members understand the purpose of super (which is to accumulate a nest egg that will provide a comfortable income in retirement), how they are tracking to achieve their retirement goals, and what they can do to ensure they meet those goals.
The chart shows the sub-criteria we use for member services and the weightings we assign to them.
The fees a member pays – either directly from their account or indirectly through their investments – have a bearing on how much money they have in retirement. That's not to say a low fee fund is necessarily the best. A fund may be cheap because its investments use a lot of passive management, or it may cut costs by providing little in the way of member services.
When we assess a fund on fees, we look not only at the fees and costs a member pays, directly or indirectly, but also on how clearly and completely the fund discloses those fees and costs, as shown in the chart below. Fees account for 12.5% of our overall rating.
Insurance is an important benefit, but it's also a cost a member pays and should represent good value. The best funds provide cover that is affordable, flexible, relevant to the demographics of their membership, and requires the minimum of paperwork and medical evidence.
The main aspects we focus on are the premiums, the conditions that must be met for benefits to be paid, the amount of cover available without medical evidence and the range and relevance of the benefits provided. Insurance accounts for 12.5% of the overall rating and is shown in the chart below.
Australian super funds are highly regulated and they are not geared, so the chance of failure is quite remote. Nevertheless, it is important to know that the organisation behind the fund has the strength and resources to continue to provide positive member outcomes.
When we assess a fund on organisation, we look at who owns or controls it, its governance, the strength of its management team and its strategy for the future. Organisation accounts for 5% of the overall rating and is shown below.