Debate continues over the differences between industry and retail superannuation funds. Which is the best? That’s a matter of personal opinion, but we can tell you how they differ. Industry funds and retail funds differ in their history and structure. They can be likened in some ways to credit unions and banks. Here’s a brief rundown:
Retail funds were developed by financial institutions and insurance companies to cater for people who were interested in investing and saving for their retirement. It’s fair to say the initial focus of these funds were wealthier white collar customer typically in management positions. They offered investment expertise and personal service to their clients and charged a commission to provide that service. The funds were developed to generate revenue and profit for the financial institutions.
In response trade unions argued that a comfortable retirement should be available to all workers not just management. Therefore industry funds were predominantly developed by trade union and industry bodies to provide for their members in retirement. Until recently they were exclusive to their industry but super choices have opened them up to anyone eligible for superannuation. This is where the term “public offer” originated – they are now open to the general public and no longer restricted to their industry.
Industry funds are not for profit organizations. When it comes to the products offered there can be considerable differences in the fees charged. Because industry funds are not for profit they generally charge lower fees. However this is changing. Some retail funds are now challenging this paradigm by introducing new low cost products, for example AMP Flexible Super Core and Select. Retail funds tend to offer a much greater range of investment options however we are seeing signs of industry funds responding with new options, for example Sunsuper now offers 20 options including single sector and emerging market investments. There is also the argument that too many options are not actually beneficial.
The great debate in the media at the moment is around commissions. Industry funds will tell you they don’t pay any commissions to financial advisers. And let’s face it the lower the fees the more money goes in your account and the better off you will be. However, as the old saying goes, there are always two sides to every argument. The other side of the argument is if you get good advice and invest in the right option you will be much better off in the long run – even if you pay fees to your financial adviser. And there are ways to minimise the fees and commissions you pay. Our article regarding superannuation fees goes into more detail on the matter.
When it comes to advice retail funds generally have a much stronger focus on promoting advice services and providing advice through their own adviser channels or arrangements with an adviser network. This is no surprise given their history. We surveyed 1,100 superannuation account holders and asked who had obtained financial advice in the last 12 months. Overwhelmingly retail fund customers had a higher percentage of customers who had obtained financial advice in the last 12 months by a ratio of more than 2 to 1.
This is not to say industry funds don’t value advice as many have established call centres, staffed with qualified advisers, or entered into arrangements with adviser groups. They can answer simple super questions right through to full financial plans.
And finally both retail and industry funds can provide you with insurance. Industry funds generally offer cheaper premiums and you usually don’t have to take a medical. However the amount of cover is usually pretty basic. Check that the type and amount of cover is suitable for your needs.