The pitfalls in failing to consider financial advice The financial services royal commission damaged trust in the sector, but SuperRatings’ Camille Schmidt explains the dangers in turning your back on financial advice.
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There is significant value in obtaining financial advice, however very few Australians access these services through their superannuation fund. When considering the type of investment option that suits you, there are several things to consider including your age, investment goals and risk tolerance. Accessing advice to ensure that the investment option you’re in is aligned to these characteristics is crucial. If you are more risk averse and try to avoid the ups and downs of the market, then being invested in an option with a lot of exposure to growth assets, such as Australian and international shares, may not be suitable. We have seen considerable market movements in 2020 and this reinforces the importance of this decision, as these markets can be volatile. A Conservative Balanced or Capital Stable option, which is less exposed to these asset classes, Growth in $100,000 invested over 15 years to 31 January 2020 $350,000
SR50 Growth (77-90) Index SR50 Balanced (60-76) Index
$300,000
SR50 Australian Shares Index SR50 International Shares Index
$250,000
SR50 Cash Index
$200,000 $150,000 $100,000
YourLifeChoices Retirement Affordability Index™ March 2020
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8
v-1
No
7
v-1
No
6
v-1
No
5
v-1
No
4
v-1
No
3
No
v-1
2
v-1
No
1
v-1
No
0
v-1
No
9
v-1
No
8
v-0
No
7
v-0
No
6
v-0
No
5
v-0
No
4
$50,000 v-0
Members now need to confirm annually if they wish to continue receiving advice services, and we have seen a greater focus on transparency with the regulator, the Australian Prudential Regulation Authority (APRA), releasing ‘heatmaps’ that show expensive and poorly performing funds. Wealth management arms of the big banks have been sold and the government has introduced new legislation, with Protecting Your Super and Putting Members’ Interests First bills that focus on changes to inactive accounts, fees and insurance. Across the industry, superannuation funds continue to merge, with more consolidation expected.
The importance of financial advice when selecting an investment strategy
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Recent events round out a period of significant change for the financial services industry. A spotlight was shone on the industry through the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which revealed poor conduct and had a severe impact on consumers’ trust. New standards took effect on 1 January 2019 through the Financial Adviser Standards and Ethics Authority (FASEA).
SuperRatings has researched superannuation funds for more than 17 years and has developed a methodology that assesses more than 300 characteristics of a fund. When SuperRatings analyses a fund, we consider the investment performance delivered with a focus on long-term periods, how much the fund charges and the insurance offering. We provide information on these areas at SuperRatings Top 10 site.
No
1. $100,000 invested at the peak of the market, prior to the global financial crisis (GFC), is up around 80 per cent. 2. $100,000 invested at the depth of the GFC is up by around 121 per cent. 3. If you put $100,000 into cash at the bottom of the GFC and stayed there, your balance would now be close to $90,000 behind the median Balanced fund.
What makes a good super fund?
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e are in the midst of challenging times. The COVID-19 pandemic, coupled with oil price shocks, has caused turmoil in investment markets. When events such as these occur, it can be very stressful, but SuperRatings emphasises the importance of taking a long-term view. Looking back at previous events, such as the Ebola outbreak in 2018 or the SARS epidemic back in 2003, Australian super funds have proved relatively resilient to short-term market movements. Furthermore, it’s important to provide some context to these types of events, analysing the median Balanced Option, which has around 60 to 76 per cent invested in growth assets such as shares:
Source: SuperRatings
