Opinion
Should I move from a small super fund to a major one?
Paul Benson
Money contributorI am currently in a small industry super fund and have taken the MySuper balanced option. The returns over 10 years have been competitive with the larger funds, returning 7.8 per cent on average, and low fees. However, I am concerned that it is a small fund. Should I move to one of the bigger funds? Are smaller funds riskier? Is there an optimal time to change funds? For example, after the end of financial year. Retirement is four years away.
There’s a Goldilocks element to this one. We want not too hot and not too cold. Just right.
A small fund may well have issues around costs, being able to spread their overheads across fewer account holders. The superannuation industry and its regulator have, however, been quite proactive recently in encouraging small funds to amalgamate.
While a small fund can seem like it lags bigger ones, it can still be a winner when it comes to returns.Credit: Simon Letch
It may therefore be that whilst your fund is small relative to the largest funds in Australia, it is nevertheless holding several billion dollars in member savings, and is therefore large enough to be viable and suitable for investors.
Generally speaking, larger funds, through the benefits of economies of scale, can offer members lower fees. There can, however, be a downside to size, and that is a loss of nimbleness when it comes to investing.
If a fund manager in one of our largest funds identifies a small Australian company that they feel has outstanding prospects, it can be difficult to gain enough exposure to the stock such that it has a meaningful impact on fund performance.
It is for this reason that some of our largest super funds have expanded internationally, with offices in the likes of New York and London. Quite simply, the Australian market is too small a pool for them to swim in.
With regards an optimal time to change funds, it really shouldn’t matter, as unit prices are calculated daily, and funds have an obligation to treat all members equitably. Switching super funds has no consequences for your personal taxes, so before or after end of financial year shouldn’t matter either. Perhaps just ensure you claim tax deductions on any contributions made before rolling over.
My wife and I are currently about eight years away from retirement. We’ve never worked with a financial planner and are wondering whether now is the time. Our lives are pretty simple, each with a mainstream super fund, and our mortgage paid off. How much should we expect to pay to have a financial plan done, and is this to right time in our lives?
It was Albert Einstein who observed that compound interest was the 8th wonder of the world. Compounding is fundamental to wealth creation and financial security. The thing is, it takes time. That being the case, the sooner you can implement any tweaks or improvements to your financial arrangements, the more years these changes will have to bear fruit.
Eight years out from retirement would be a great time to begin working with a financial planner. Maximising your use of the superannuation system, thinking about investments outside superannuation and how they will contribute to your retirement goals, determining how much you can spend in retirement without running the risk of your money running out before you do, and no doubt plenty more.
The cost for an initial strategy will depend on the complexity of your current holdings, but you should expect to pay between about $4000 and $8000. Often you can pay for this from your super fund provided the advice relates entirely to retirement planning.
Once your plan is in place you should catch up with your planner once a year to make course corrections and respond to changes in the broader financial environment.
Paul Benson is a Certified Financial Planner at Guidance Financial Services. Questions to: paul@financialautonomy.com.au
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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