Unit 7c Choosing a fund
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This document discusses factors to consider when choosing a superannuation fund, including different types of funds, investment options, fees, and insurance options. It provides details on not-for-profit funds, retail funds, employer funds, corporate funds, and master trusts. It outlines things to watch out for like fees, commissions, and unnecessary insurance. Key criteria for evaluating funds are listed as product alternatives, investment options, fees, insurance options and costs, and the readability of forms and documentation.
Unit 7c Choosing a fund
- 1. GENC3003Personal Financial PlanningAndrew Hingstonandrew.hingston@unsw.edu.auUnit 7: Choosing a fund
- 2. 2Choosing a fundSome things to consider:Product alternativesInvestment optionsFeesInsurance (options and cost)Readability of brochures, forms, paperworkWebsite featuresSource of good information about funds:www.selectingsuper.com.au
- 3. 3Choosing a fundProduct alternativesNot-for-profit funds (eg. REST)Can be good … but often don’t disclose their investment fees and can have poor features and poor service.Retail Funds (eg. Virgin Superannuation)Administered by financial institutions. Good features, investment options and service but check the fees!Employer Funds (eg. AMP Custom Super)Administered by financial institutions. Your employer chooses the fund. You normally must leave fund when you change employers. Watch out for high fees and unnecessary insurance!
- 4. 4Corporate Funds (eg. Telstra Super)A fund that your company has set up for staff many years ago. Usually administered by a financial institution (eg. William Mercer). You normally must leave the fund when you change employers.Master Trusts (eg. Asgard)Give you the options of choosing between managed funds.Usually sold by advisers. Watch out for high fees and commissions!!
- 5. 5Choosing a fundInvestment alternativesInvestment optionsYou are given “options” with names like “conservative”, “balanced”, “growth” and “high growth”The super fund chooses managed funds into which each option is invested.Choose “growth” or “high growth” option and leave it there for 30 years!Managed fundsRetail Funds and Master Trusts often let you choose managed funds directly (rather than a generic investment option)Watch out for higher fees and higher hassle!
- 6. 6Choosing a fundFeesEntry Fees are usually paid to financial planners. NEVER pay an entry fee!Administration Fees are usually about $100 per year (fixed). (Consolidate your funds!!!)Investment Manager Fees (or MERs) are paid to fund managers. Can be between 0.3% and 1.8%. Any fund that says that the only fee is “$1 per week” is hiding the MER of their fund managers.Exit Fees should normally be less than $100. They can be higher than $2,000 for some old funds.
- 7. 7Choosing a fundFeesSource: Australians “Super choice pushes fees up”, 24/5/2007http://www.theaustralian.news.com.au/story/0,20867,21784188-643,00.html
- 8. 8Choosing a fundInsuranceDeath coverPays lump sum when you dieUsually much cheaper because insurance companies cover all members as a group.Cost can vary significantly between fundsMuch cheaper than buying it outside superTotal & Permanent disability (TPD)Pays lump sum when you become TPDCan be a waste of money.See if there’s a “death only” option.
- 9. 9Salary ContinuanceReplaces 75% of salary for a maximum of 2 years if cannot workCan’t claim tax deductions on paymentsCan be better to obtain this outside super because of tax deductions and greater flexibilitySome funds are now allowing benefit period more than 2 years
- 10. 10Choosing a fundFormsClear application formsClear explanation of superannuation systemClear explanation of feesClear explanation of insuranceClear explanation of investment options!
- 11. 11Choosing a fundSelf-managed superannuation fundsA special, small fund for up to five membersAlso called DIY super fundsGives you more flexibility with investmentsExample: property investmentsBUTThere are still a LOT of investment restrictionsCannot borrow money to buy investments (eg. property)Expensive to set up ($1000+)Expensive to run ($2500+ per year)Not for people with less than $100,000 in superSee your accountant about setting up a fund