Friday, March 5, 2010

The super advice argument - consistent but vulnerable

You have to hand it to the ideologically driven Industry Fund Services troops and their front man, David Whiteley. They've stayed 'on message' about superannuation fees and the value of financial advice. In fact, they've stayed on... and on... and on message!

There's no doubt the message has sunk in with the punters who have actually turned their attention to super. Industry fund membership has grown relative to the commercial funds.

Fees and charges have always been a top ten issue for superannuation fund members, but never Number 1 in their list of priorities. Advice has even been further down their list. The Numero Uno is always investment returns - and in the Australian disclosure environment, that means net returns after fees and tax are taken out. In other words, if retail funds and financial advisers can deliver what they call 'alpha', which means better returns than anyone else after fees and tax, no one gives a crap about the fees, unless they're completely blind to the link between effort and reward.

As a real estate client once said to me - It's not the turnover that counts, it's the left over. And personally, that's what concerns me as a consumer of investment services. I don't care what the fees or cost or advice are as long as the outcome for me is markedly better than elsewhere. That's why I pay fees, which is the point that seems to be missed by Whiteley and Co. When I get really pissed is when I pay top dollar and get something inferior. And this has been the crunch for commercial funds which, up until the last year or so, charged the highest fees and generally delivered the worst outcomes. That's why the IFS story has gained so much traction - not because of the sticker price.

The point from a brand perspective is that price is a notoriously poor value proposition. That's why I believe that the not-for-profit industry funds sector has left itself vulnerable with this message. How many companies that have positioned themselves on a 'lowest price guarantee' have gone out of business or become irrelevant in their sector? Already, commercial funds, many with the backing of the major banks that own them, are starting to offer no-frills, low-advice superannuation products. And every industry fund member most likely has a bank account, which means any switched-on banking group can do a hot job of promoting its wealth management business to individuals worth pursuing - generally the 'high net worth' types.

This is the danger for IFS if it sets up like a single-issue political party. It may attract a hard core of loyal followers, but battle for the hearts and minds of the majority, most of whom are totally disengaged from the story. And with the Government constantly shifting the goal posts in terms of retirement funding policy and the recent GFC making cash returns look almost as good as any over the past five years, the emerging issue is not fees but public confidence that the retirement outcomes forecast for them now will look anything like the outcomes they experience when they retire.

Don't get me wrong. I think for most people, the not-for-profit, low fees, set-and-forget model suits the vast majority of superannuation investors, particularly in an environment where contributing to superannuation is mandatory for any working person. I just think that the industry funds group needs to start redefining what it stands for as a 'brand' and promote the ways it adds value for fund members. Not everyone suffers 'big box' grocery shopping just to save money. For mine, I'd rather pay a bit more to engage with providers who find ways to add value to my relationship with them. And if they can do that, when others inevitably up the ante by offering lower prices, I'm unlikely to change stream.

The times they are a changin' and I can't wait to see how the battle of the brands unfolds...

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