Traditional Bad Habits
There are more than a few bad habits around the selection of a product by employers. In some cases, the selection is based upon reciprocal trade, which in effect amounts to a conflicted financial relationship. That is one of the major reasons the banks are disposing of their financial services arm and the reason why vertical integration within the financial services industry is being frowned upon.
Most platforms provide product and then promise they are interested in optimising each employee’s super. They do not explain their intention is to give general advice and not personal advice. Within such a service model, there is an overreliance on the performance of the MySuper investment default, the consequence being that most employees in an employer super plan are uninformed around their investment strategy and how it is performing against other product options. In essence, even HR (apologies to HR) would understand that you do not need a plethora of different products licensed to provide an investment default for employer super. There should only be one market wide MySuper investment default.
Surely if your employee is going to proceed without personally managing their super asset, they would simply want to be in the best performing MySuper investment default. Such comparisons are published every year in July, even if incorrectly explained by the media.
Every platform promotes its ability to “educate” its client base. This is their idea of servicing and their eternal promise. Some platforms do not actually intend to educate, as they are just client mining to sell higher margin services such as financial planning. Other platforms offer this service to mask the fact that their service value to employees is at least minimal if not in fact totally ineffective. Where employers would ask for hard evidence of value on other costs incurred by their business (as measured by a KPI), management within most employers put super in the too hard basket and seem to endorse their current provider. Platforms are highly skilled in relationship management, the existence of which surely confirms the lack of value being delivered at individual account level for the asset accumulated.
Overcoming Super Inertia
In quoting a well-known movie scene, platforms can’t handle the truth. Then again, employer management appears to prefer inertia on super as a remuneration benefit as the alternative might be rather hard work.
Examination of super as a remuneration benefit and then learning how to optimise super for your employees is a challenge and one only worth taking if the positive benefit is high. Consider just three areas where currently service value at an individual account level is significantly impaired:
- The incidence of salary sacrifice within employer super is below 1 in 10 employees. Traditionally people wait until they are in their fifties before starting to salary sacrifice, a result of weak servicing. Salary sacrifice is more beneficial if started early and continued with a little over a long time as opposed to the mad rush as an employee approaches retirement. o Most members of an employer super plan are in the MySuper investment default but you will not find any platform saying you can get a much better return from their competitor. Over a period of 25 years, an extra 1% as a return on super would represent an increase in projected income in retirement of over 20% in today’s dollars. In presenting their investment returns to their clients, platforms will compare their performance to a benchmark and not to their peer group. Platforms will not explain why they have underperformed against their peer group and, equally so, how they constantly outperform their peer group. Then again, employers do not press this particular supplier for the right information, a fact that is genuinely a puzzle.
- In any employer plan, when you might expect most people to be in the situation where they have no need of insurance based upon good health, high asset balance and low debt, some 80% plus of the members of an employer plan still have insurance. Upon examination, every employer examined so far will find that around 50% of the insurance premium for group insurance policies is charged to the over 50’s, who only represent around 15% of the workforce. As a simple comment, if you never claim on your insurance, it is simply a cost and a detraction from your annual contribution. In individual cases within an employer plan, it is easy to find a member whose entire annual contribution is drained from their super when you calculate fees plus insurance premiums plus tax.
Knowledge is Gold
The above are but three examples but there are more. All employers need their super examined to ensure they can argue they are doing year in and year out what is appropriate in guaranteeing their employer plan delivers superior value to their employees on an ongoing basis.
Hold your service providers accountable. Call AXIS Financial Group on 1800 111 299 and ask for Roy or Richard or email them at consulting@axisfg.com.au.
This document was prepared and issued by AXIS Financial Group (ABN 21 092 889 579, AFSL 233680). The information contained within it is not advice. It provides general information only and does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking with your financial adviser before making an investment decision. Information in this publication, which is taken from sources other than AXIS Financial Group, is believed to be accurate. However, subject to any contrary provision in any applicable law, neither AXIS Financial Group, nor its employees and directors, provide any warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it.
