For those who specialise and work in specific industries, however, the selection process could be narrowed down to industry funds. Fortunately, industry funds have been outperforming retail funds managed by investment companies for the past decade.
Learn what industry funds are and why you may wish to consider rolling over your super to it, if you’re still not in one.
What is an industry super fund?
An industry super fund is a type of superannuation fund that caters to employees working in particular industries or sectors. Larger industry funds also allow any interested person to become a member.
Most industry funds in the market are accumulation funds—funds where members and their employers make their contribution for their retirement benefits.
Defined benefit funds are funds whose members work in the corporate sector or are public sector workers. They will receive a definite amount of payout upon retirement based on contributions, salary upon retirement and length of stay in their workplace.
Most defined benefit funds are more generous to retired members, which is why most experts recommend existing members to think long and hard before leaving one.
What makes industry funds different?
Industry funds and retail funds usually seem to be on equal footing, but industry funds has historically given better returns to its members.
Industry funds are not-for-profit funds that do not pay investment managers large commissions to manage their members’ investments. This means industry fund managers usually charge lower fees to their members and this increases the amount of money that members accumulate in their fund.
When they profit from the portfolio, industry fund managers use it to top up the fund’s investments for the benefit of its members.
They also have fewer, more conservative investment options that can already meet their members’ needs without increased exposure to market risks.
Retail funds, on the other hand, are managed by banks and investment companies whose strategy usually involves paying high commissions or advisory fees to financial planners and active fund managers. Payment for the commissioned experts are passed on to members through increased fees, thus decreasing its members’ savings.
These funds usually have a large number of investment options available for its members, but its fees can be expensive because these are usually mid to high-cost funds.
Unlike industry funds which use profits to top up investments, retail funds usually retain their profits.
How to choose an industry fund
There are five things to consider when selecting an industry fund to maximise benefits from it. These are:
Your super fund is a long-term investment which means it’s incredibly important to know if the fund that receives your contributions can actually grow it for you.
Financial experts reminds investors that historical performance does not determine future success, however, it would be helpful to determine if the fund manager has been able to consistently perform well or if the numbers they are boasting are only in comparison to the less successful performers.
Make sure to compare the performance of different industry funds with similar portfolios. Avoid deciding based on the previous year’s results. Since your super investments are locked in for the long term, it’s also important to check the fund’s long-term historical performance.
Review investment returns for the past five to 10 years 一 or go further back if you’re comparing funds from older companies.
- Investment options
Check if the super fund you are considering has options that fit your investment objectives. Don’t settle for a fund if you believe that none of the available options can meet your investment objectives.
As previously mentioned, industry funds have a smaller selection of investment options.
Understand that the not-for-profit industry funds focus on delivering benefits to its members and that their products usually already offer a well-diversified portfolio that is in accordance to the product’s objectives.
- Insurance cover
Industry funds may be low to mid-cost but some still offer attractive insurance covers.
When selecting a fund, check if it offers insurance cover, if the policy has enough coverage, and how much it would cost you.
You may find that some low-cost funds only come with policies that don’t offer enough coverage. Others offer expensive insurance policy with unnecessary coverage, such as a sports injury coverage even when the insured doesn’t engage in any sport.
In both cases of insufficient or unnecessary coverage, the money you spend for the policy would be a waste.
Ask what other services the fund manager can offer apart from managing your retirement investments. It can be something as simple as a 24/7 contact centre for its clients or something more special like a detailed annual review of your fund’s performance.
The important thing is that you know what kind of services you can expect to receive if you open a super fund with them.
As an investor, the only things you can control are your choice of fund/investments and the fees you pay. High fees could decrease your retirement savings.
Know what fees will be charged against your account and what exactly you are paying for with each fee. Don’t settle for presentations or brochures with percentages — ask for the exact dollar costs for each fee.
Industry funds usually charge lower fees than other super funds; however, make sure that you don’t reject funds simply because of their fees.
Always compare fees side-by-side with the fund’s performance: a fund with a slightly higher fee and better, more consistent performance may be more beneficial in the long-term.
What are some examples of industry funds?
There are many industry funds to choose from. Look for consistency in performance and compare the companies that have performed well in the past five years, at the very least.
Some of these low-cost but great performers includes industry funds managed by Hostplus, CBus, AustralianSuper, Unisuper and Hesta. All five are members of Industry SuperFunds.
The Association of Superannuation Funds of Australia has a complete list of all legitimate industry funds. From that list, you can compare your desired industry fund against the 16 members of Industry SuperFunds.
When in doubt, seek financial advice
The information written above should not be taken as financial advice in any manner or form.
It’s best to do further research and speak to a licensed financial expert who can take your personal circumstance into consideration when making recommendations.
This information has been sourced from Industry SuperFunds and ASFA.