Apples with Apples

Question


Hi Scott,

What is the best way to compare super funds ‘apples with apples’ — to make a reliable comparison of percentage return and fees all bundled into one? My wife and I have spoken to a private wealth/financial advisor and, while his fees are very reasonable, the annual fee (1.1%) for the super platform he is recommending is a killer. Especially when you consider the fund’s workload does not increase as our balance increases. I do not understand why these guys ask for a percentage rather than a set fee. What do you say?

Rick

Scott's Answer


Hey Rick,

Good on you for trying to wrap your head around this, mate.

This week ASIC released research that found that almost two-thirds (64%) of consumers aren’t able to locate all relevant fees in the PDS for a managed investment, and less than half (47%) are able to locate all fees in the PDS for a superannuation fund.

And that’s exactly how the highly paid finance lawyers who draft this sludge want it!

Simply put, your advisor wants an ongoing percentage of your assets because that’s in their best interests:

Your fees are their income.

Let me cut through the legalese and give it to you straight.

Head over to ASIC MoneySmart’s fee calculator and put in the following: a starting balance of $100,000 and $10,000 invested a year invested over 25 years will grow to $1.62 million.

Yet the effect of that 1.1% fee per annum will be a massive $503,423.

I’ll leave it up to you to determine whether that’s ‘very reasonable’.

My view is that it would be reasonable to pay an advisor a professional hourly rate to set up and review your situation. I also think it’s reasonable to invest with low-cost index options from the likes of Vanguard.

Scott