Superannuation – Costs are the killer

Written by Michael McAlary

Call us to find out how we can substantially reduce your fees so you get the most out of your superannuation.

Choosing the right superannuation fund is critical to your long term retirement life style. We all want a comfortable lifestyle in retirement where we don’t need to worry about money. It is therefore important to look at the costs of your superannuation provider.

Member fee

Most superannuation funds, whether they are industry funds (run by organisations that are involved in the industry and their charter is about looking after its members) or retail funds (run by the large banks and insurance companies and their focus is on profit for the shareholders) typically charge a member fee. This fee is usually charged monthly and is indexed annually.

Contribution fee

The fund may have a contribution fee which may be either a flat fee or a percentage of the transaction.

Asset management fee

The next fee is the Asset Management fee that is charged by the superannuation fund for managing the assets of the fund. This is usually a percentage of the funds under management (also called FUM by the industry). So if you have $50,000 in your superannuation fund and the Asset Fee is 1.0% of FUM, the fee is $500. This is normally deducted quarterly.

Investment manager fee

The superannuation fund then charges on behalf of the investment manager an Investment manager fee, as with the Asset management fee this is charged as a percentage of the FUM. This fee may range from approximately 0.30% -1.00% depending on the Investment Manager.

So the Asset management and Investment Manager Fee together could be 1.50% to 2.0%, plus the member fee each year. This means that the fund must return at least 2.0%-2.5% for you to breakeven. As some of your funds will be invested in cash and the cash rate is 2.5%, this means that the other assets (e.g. equities, property, etc) that your fund are invested in must make a much greater return, if your superannuation nest egg is to grow.

Switching and withdrawal fee

The superannuation fund may then charge fees for switching, withdrawals and other activities you may request.

Adviser fee

There is then the adviser fee that may be charged for their services, This fee may be a flat fee or a percentage of FUM. Most of the large superannuation providers via their parent (major bank or insurance company) either own the financial planners who are advising you on your superannuation. It is estimated that 85% of financial planners are not independent. WealthMaker Financial Services is independent.

Index v stock picking

If you believe that over the long term it is very difficult for an investment manager to beat (industry speak is outperform) the index, then you should consider WealthMaker Financial Services index approach to superannuation, as the costs will be significantly less than those where the investment manager attempts to pick winning stocks and frequently fail. This means that WealthMaker Financial Services can provide a more cost effective solution to your superannuation, thereby increasing your end savings/investments.

Insurance

Another important consideration is the types and costs of insurance that come with your superannuation. Most superannuation funds provide what is called as “Group” Life and Total and Permanent Disability (TPD) insurance whereby you receive insurance cover without the need for a detailed medical assessment as with “retail/personal” insurance. The cost of Group insurance is less than retail, but so are the benefits.

Call us on (02) 9233-1111 for an obligation free discussion and find out about how you can reduce your fees.

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