March 19th, 2012 at 04:54am
If you live in Australia (and there’s a decent percentage of visitors to this blog who don’t, these days) then you would undoubtedly be familiar with the “Industry Super Funds”; the superannuation funds such as Hesta, Australian Super, C-BUS, which are owned and run by the unions and which claim to have lower fees and better returns than the other “retail funds”.
John Moulis has an interesting article about these organisations and their ties to the Aboriginal Tent Embassy up on his blog. I pulled my funds out of Australian Super quite some time ago when I got sick of my fees going to the Unions and their left-wing political campaigns, and realised that I could get better returns on my investments elsewhere…but more on that in a minute.
John has detailed some interesting stuff which I doubt that many people in the general public know.
“From little things big things grow”
I’m as sick of that song as the recording engineers who had to listen to it over and over during the recording session in 1988.
If – like myself – you’ve stopped to ask yourself why a song released almost a quarter of a century ago, which didn’t even make the Top 40 at the time, has received such relentless exposure I have the answer. These are the facts the media don’t want you to know.
In 1988 the Aboriginal tent embassy was re-established outside Old Parliament House in Canberra after a break of over ten years.
As part of all this, Paul Kelly (the singer/songwriter) was enlisted to write a song which would provide funding for the tent embassy. All the royalties and other revenue from the song would go towards funding the tent embassy.
Paul Kelly himself had many hits over the years. [..] Yet From Little Things Big Things Grow is conspicuously absent from all the Greatest Hits CD and DVD compilations. You cannot even buy it on iTunes. It is almost as if Paul Kelly himself is ashamed of the song.
The song is now being used in TV advertising for so-called Industry Super Funds. Every time these ads go to air more and more money goes to the Aboriginal Tent Embassy.
John also has some interesting information about which recent political campaigns have been funded in part by the fees gathered from the accounts of unsuspecting Industry Super Fund account holders. It’s a good read, and I won’t spoil all the details, so head on over to Jack’s blog and I’ll see you back here when you’re done.
Right, welcome back. Earlier I mentioned that I can receive better returns on my investments in “retail funds” than I can in “Industry Super Funds”. Now if you have paid much attention to the advertisements for the Industry Super Funds, this might seem silly to you as they have various examples of how they provide the better returns, almost entirely due to lower fees. Well, I’m here to tell you, that’s an outright lie.
To start with, the advertising is misleading. The calculations used in those advertisements work on the basis that every fund provides the same rate of return, and as such having lower fees on your account provides you with a better return. This is quite clearly false.
Rates of return vary from one Super Fund to another, and by-and-large are due to the actions and decisions of the people who decide how and where to invest. It’s not always the case, but as a general rule, the people who have a track record of making better investment decisions will charge more for their advice and expertise than people who have a less impressive record. Consequently, higher account fees can allow Super Funds to obtain the advice of better investment managers and advisors, thereby providing a better rate of return to their customers. In fact, most independent analysis of the superannuation industry show that, overall, most retail funds have better rates of return that Industry Super Funds. Various investment options with various funds make it easy to misinterpret and misrepresent the data, but when you look at the overall picture, Industry Super Funds rarely outperform the retail funds.
And back to the fees…do Industry Super Funds really have lower fees than retail funds? If you compare account statements, then the answer would almost always be “yes”, but that’s not the full picture. Industry Super Funds are very clever about how they hide fees as, in fact, they have a fee which does not show up on any statement.
When you get paid by your employer every week/fortnight/month/etc, they send your 9% mandatory superannuation contribution (or higher amount if you have nominated one) off to your super fund. You can see this payment on your payslip. What most retail funds do upon receipt of this payment is they credit it to your account almost immediately. With my fund, this usually takes a few hours. This money is then invested as part of your superannuation investment and starts to earn you money.
Compare that to how the Industry Super Funds treat your payments. When they receive them, they generally do not credit them to your account straight away, and instead hang on to them for weeks, investing the money for their own gain (they keep those gains…you never see them) and then eventually credit a whole heap of your payments to your account in a batch. When I was with Australian Super, I would usually see these payments appear in the account once every two months, or thereabouts. I also could never quite make the payments add up…it really looked like Australian Super were keeping a dollar or so for themselves from each of my contributions.
By doing this, Industry Super Funds are effectively charging you a fee of whatever money could be made out of investing your payments over the course of weeks or months. This costs you thousands upon thousands of dollars over the long-term, both in their “withholding fee” at the time, and the money which you could have earnt as a result of the extra money which you would have earnt over the course of the withholding period. That’s a convoluted sentence, so think of compound interest. If you invest a dollar and earn 10% per month, then after a month you would have $1.10, then you contribute another dollar, taking you to $2.10 and over the next month you earn $0.21 which takes you to $2.31. Under the withholding scheme, your first dollar might appear straight away, so at the end of the first month you would have $1.10, but if the next payment is withheld for a month, then you would only earn $0.11 over that month, putting your investment at $2.21 once the withheld amount is added.
Extrapolate that over many years and with many rounds of withholding, and that’s a lot of money that the Industry Super Funds are taking away from your investment without ever having to declare it on your statements.
One final point on the idea of non-profit funds versus for-profit funds. If your super fund is for-profit and is listed on the stock exchange, then any profits they make will generally have a positive effect on their share price, which in turn is good for your investments and your superannuation. Non-profit might sound good (and given the ideology of the people behind the Industry Super Funds, I can see why they try to make it sound really attractive), but a simple bit of critical thinking about the economic consequences will prove that a non-profit super fund which sends money to other groups which despise the idea of profit and do their utmost to ban the very idea of profit, is really a terrible way to invest money.
Entry Filed under: Samuel's Editorials