Nick Bruining Q+A: Weigh up extra fees when thinking of switching superannuation funds

Question

My superannuation is currently with HESTA. With retirement not that far away, I decided to get some professional advice, and went and saw a financial adviser.

They recommended that I change from HESTA to the BT Panorama super fund.

I thought HESTA was doing quite well because they are quite high on a number of performance league tables.

I am just not sure if I should be changing super funds and would welcome your view.

Answer

At the outset, because we only have very limited information, assumptions will need to be made. Both of these funds have good and bad points.

There may be a conflict of interest at play because it is highly likely HESTA would not deduct and pay your financial adviser advice fees, which may be percentage-based. In my view, percentage-based fees are commissions in disguise.

Performance of your existing HESTA fund is primarily due to the mix of assets and the amounts allocated to each sector. Different asset allocations also change the risk profile dramatically. It also means it is nearly impossible to compare performance accurately.

BT Panorama is essentially an investment platform which allows you to select specific investment managers from a pool of hundreds. Your adviser will make recommendations on which sub-funds to use and the overall mix.

HESTA, on the other hand, typically suggests pre-mixed investment options but allows you to dial up your own investment mix if that is a stated request.

Platforms like Panorama can sometimes be cheaper than industry schemes, but this is typically when sums are significant. Different products tend to have “fee sweet-spots”, and invested amounts above this figure can be cheaper overall.

In my opinion, most of these benefits don’t apply until your invested amount exceeds about $600,000 with a handful of funds. Typically, the sweet-spot figure is more than $1 million. Below this, you would need to see tangible benefits in other areas to justify the additional fees.

For example, total fees on $400,000 invested in the HESTA Conservative ABP are about 0.6 per cent a year — or $2400. The same invested in Panorama, using the BT Moderate Growth Fund, is about 1.33 per cent — $5430 a year, and that doesn’t include ongoing financial advice fees.

Generally speaking, platforms like Panorama are much more administratively efficient than industry funds — delays of weeks for a withdrawal versus money in the bank that day.

For the difference in fees highlighted above, however, I would clearly want to establish the value being added, and what additional services are included.

For retirees, good planners will be involved in liaising with organisations like Centrelink, MyAgedCare and others right through retirement. They effectively become your go-to person for almost everything financial.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association