Like many young Australians I never paid much attention to my superannuation fund. After all why should I? Boring. But here’s our Hidden Superfund Low fees tip.
The money went into the account and that’s all I was really concerned about. Instead I was focused on building up my share portfolio and saving for my first home in my twenties.
Being part of a not-for-profit Super fund for all these years, I had always assumed they had my best interests at heart and were at least doing better than those underperforming notorious bank-owned retail Superfunds.
Disclaimer: it is important to note here that the information in this article is for general information and entertainment purposes only and is not a replacement for professional advice. Money with Dan and Prophet Invest are not a financial advisors. You should consider seeking independent legal, financial, taxation or other advice to check how the information in this video relates to your unique circumstances.
Understanding My Superfund Low fees
A few years ago, I noticed my small superfund balance had grown to a sizeable amount that started to rival my other investments. So I finally began to take greater notice of my superfund’s annual statement and eagerly awaited to see the ever-growing nest egg.
I was very familiar with the Administration Fee which paid for the general operation of the fund. This I thought was the only fee, other than insurance. At around 0.15% of the account balance each year I always felt this was good value. My superfund never missed an opportunity to tell the world how low their fees were. So I took their word for it!
Both the Administration Fee and the Insurance Fees were always transparent and were clearly deducted from my account where I could see them both very easily in my statement.
However, I got a big surprise when I saw the Fees and Costs section on page 7. Here I noticed a sizeable fee that I had never noticed before which had never appeared on my transaction summary on page 1. This fee was labelled as “other fees of your investment” and was listed under the heading of “indirect fee”.
After digging into this “OTHER” fee, I found out that this was an investment fee charged on my investments. As I had chosen a more aggressive portfolio of High Growth, my superfund, or their investment advisors and affiliates, had been charging me 0.78% on the total balance I had invested every year!
I could not understand, why did this fee did not appear on the first page of my annual statement under the Super Account Summary or even in the Transaction listing?
Well, it was there after all!
It was just shown net of my investing earnings. So, the investment return is shown net of fees in my transaction statement. I would have known if I had read the fine print or the 100 pages plus of the Product Disclosure Statement (PDS) of my fund more carefully when I was twenty something with barely any money in my superfund account. But why would I, they were “LOW-FEE”
I know for a fact I am not alone. And this isn’t just by my fund.
Administration fee VS Investment fee?
The investment fees aim to cover the superfund’s cost for managing your chosen investments and covers things like external investment fees, performance related fees, transaction fees and operational costs.
If you are stuck in the default investment option or selected another diversified or pre-mixed investment option, known as the growth or balanced options, then you could be paying investment fees well over 0.7% of your entire super fund balance. In some Superfunds this fee could be between 1–2%.
Some funds may also call the diversified option with a life stage name such as born in the 1980’s or later, or in the 1970s or earlier. There are usually similar investment fees behind these too, although they might get lower as age and have a lower mix of growth assets.
Our Lower Investment Fee TIP
If you are happy for someone else to manage your investment allocations, then you can expect to pay investment fees above 0.5% in most funds and often much more depending on your investment strategy.
However, if you are willing to take a slightly more hands-on approach then you can save BIG on picking your own Single Asset Classes!
The common Single Asset Classes option that most super funds offer are:
- Fixed interest
- Australian equities
- International equities
Not all superfunds offer these Single Asset Class options and I have noticed that some require you to pick individual asset managers, that may still be very expensive.
Single Asset Class Options, Vanguard?
Now you may be wondering what the underlying investments in the single asset class option are.
The answer varies among each Superfund and the answer can be found in each Superfund’s own PDS or their website.
If I look at Aware Super’s Australian shares option as an example, I can see the top 50 shares represent 78% of the investment and consist of the top listed Australian equities accordingly to their weighting.
After contacting the fund I found out that Aware Super actually has this option managed by Vanguard Australian Shares Index Fund which is great if you want a low cost and passive way of investing your super in something similar to the popular electronic trading fund called VAS
If I look at the International share portfolio, I can see a similar index of the world’s best companies by weighting. Again, a passive investment option. This too is managed by Vanguard International Shares Index Fund which tracks the MSCI World Ex-Australia index and is like the popular electronic trading fund called VGS.
lowering my investment fee to Just 0.09%?
To compare the fees of choosing a diversified option in a large Superfund, I will be excluding insurance fees as policy coverage can vary widely. Instead, I will focus on comparing Administration and Investment Fees combined.
Below is a comparison of the administration and investment fees for a range of investment balances if I invested in Aware Super’s High Growth investment option. Source
|Amount Invested||Admin Fee||Investment Fee||Total|
In the above scenario, the total administration and investment fee ranges between 0.85% and 1.02% of the funds being managed.
Now in the next table I will apply the fees for my own customized investment mix using the Single Asset Class option, using a mix of 40% in Australian equities and 60% in international equities, which is a slightly more aggressive growth approach.
|Amount Invested||Admin Fee||Investment Fee||Total|
In this scenario, the total investment fee by itself is a LOW 0.09%. When I add the administration fee it ranges from as low as 0.17% to a high of 0.35%.
Once you take away the investment manager’s costs of actively managing your investment allocations you can see my chosen Superfund’s have significantly lower investment fees.
As each member’s investment balance grows larger in size, the investment fees take away more of the investment returns potentially leaving them with less retirement saving than if they chose their own investment allocations in the Single Asset Class option of their fund.
I encourage you to take a closer look at your annual statement of your Superfund, particularly the Fees and Costs section. I would then suggest looking at the investment fees for other investments in the same superfund and then comparing it with other funds too. Most members of a superfund have a choice of what investments their retirements savings are in and I suggest you investigate these more closely.
Small differences, pay off massively when it comes to super
Comparing Other Superfunds
If you’re interested to see how other superfund’s compared with Aware Superfund in the same comparison as above, then you can see the results in my YouTube video here: