Last week I compared how you could pay for financial advice… this week, I’ll compare how you can pay for your superannuation.

Why would we do this? Well, your super is going to be the backbone of your retirement savings, it’s compulsory and it’s the best tax break in town. If you haven’t been paying attention to your super, then RIGHT NOW is the time to start taking this seriously.

I know that for many people super is confusing and too hard. You are perfectly normal if you have no idea what fees you are paying on your superannuation, the majority of Australians don’t.

So, I’d like to make it very clear that there’s nothing to be embarrassed about if you feel you don’t really know anything about your super. However, there’s a lot to be gained by putting up your hand and asking for some help. The tricky part from there is finding the right help!

What do I mean by that? Well, there is a lot of smoke and mirrors when it comes to superannuation.

Let’s compare paying higher fees versus paying lower fees.

Fund managers and super funds with high fees, and those who recommend them, will claim that it's not fees that matter, but the after-fee returns. The problem is the numbers don’t stack up… it’s been shown time and time again that fees are the number one determinant of results.

All too often, I see people who have had their superannuation switched to a more expensive mix of investments on the basis that if you pay higher fees you get better performance. You would expect that would be the case, yet when the Productivity Commission analysed the returns from 87 funds with A$1 trillion in assets, they found that in the 11 years to 2017, those charging higher fees delivered lower returns, on average, than cheaper funds.

The lower the fees, the higher the return you can likely expect. Fees can be driven down dramatically by using the right super fund and the right mix of investments.

There are a small percentage of higher-fee fund managers who have been able to beat the market over the long-term. The problem is, how would any super fund or financial adviser be able to guess right now which few out of thousands of fund managers will actually be able to get the returns that their fees imply they should be able to achieve?

It’s a mug’s game because the higher the fees, then the higher the returns need to be in order to outweigh the cost. When getting higher than market returns is nearly impossible, what is the benefit of paying higher fees?

If you’re after great results over the long-term - and super is a long-term investment - then it makes sense to invest in the lowest cost way, which also happens to be the way that provides the best diversification… and diversification also just happens to be the ultimate risk management tool.

If you want maximum results from your super, then you need minimum fees and maximum diversification. There are a handful of super funds through which you can achieve both. If you’re not 100% confident that your money is in one of them and set up the right way, then you may be slowly kissing goodbye to years and years of future retirement income.

The Productivity Commission believes that every 0.5 percentage point increase in fees shrinks the retirement nest egg of a typical super fund member by 12 per cent over the course of their working life… sadly, people paying 1% more in fees on their super have no idea that is possibly going to cost them ONE QUARTER of their retirement savings.

To put that in perspective, what is your current income? Now take away 25% of that and imagine how you feel. That’s why this is important, because at some point in the future you will have to start paying yourself an income from your superannuation!

For some people still stuck in legacy funds (i.e. funds that are closed to new members), they could possibly be paying 2% higher fees than necessary!

Comparing super fund fees is not easy! The Productivity Commission has also found that the way fees and costs are reported “harms members by making fee comparability difficult at best, and thus renders cost-based competition largely elusive.”

Truly independent financial advice is your opportunity to get this right. Your future self will thank you.

Compare the pair! It’s your financial future at stake.

Cheers,

Daniel

If you’d like to find out more about how INDEPENDENT financial advice could help you manage cash flow, pay off the mortgage faster, get the most out of super and invest wisely, then get in touch on 0411 484 464 or head to wealthtrain.com.au.

This advice may not be suitable to you because it contains general advice which does not take into consideration any of your personal circumstances. All strategies and information provided are general advice only.

Daniel McGregor and Wealth Train are authorised representatives of Independent Financial Advice & Education AFSL 520963