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Does your super fund deserve to manage your money?

Brett Himbury, the CEO of IFM Investors, a company that manages funds on behalf of superannuation funds has provided a refreshing blast of honesty at the Association of Superannuation Funds of Australia conference.

As quoted in the Australian Financial Review, Mr Himbury said that “total funds under management has risen and total investment expenses have hugged that trend. That’s not good enough”. His point is that management fees should be falling as larger fund size allows greater economies of scale.

As I wrote in this article, superannuation funds usually charge members a wide array of fees. The most important fee is the “management fee”, which is a percentage of the funds under management. This fee does not depend on the performance of the fund. Members pay it whether the managers do a good job or not. However, the management fee should (arguably) fall as the size of the fund grows.

Himbury also implicitly acknowledged a fact that most large fund managers would prefer forget: small investors have a significant structural advantage when it comes to investing in publicly listed companies. Himbury argues that large superannuation funds should therefore invest more in unlisted infrastructure, because this is an area where they have “an advantage that cannot be questioned.”

Aside from being sensible, this would also have the added benefit of funding new infrastructure from private capital rather than public debt. Better yet, many Australians would profit from the investment in the long term: superannuation funded infrastructure would be privately owned by many small investors.

Himbury isn’t the only voice of reason coming from an industry that lacks transparency and accountability. Another fund that is doing its best to improve is behemoth AustralianSuper. Mr Ian Silk heads that fund and has long criticised fund managers for “extracting an egregious amount of money.” Mr Silk has backed up his words with actions: AustralianSuper will manage a third of its assets in-house by 2018.

Enlightening comparisons may be made between the superannuation funds Commonwealth Bank (ASX: CBA) offers to its employees, and the funds the bank offers to the public. One such comparison is between the Commonwealth Group Super “Australian Shares” option, and the Commonwealth Australian Shares Fund. The former option is available to Commonwealth Bank employees (but not retail customers), and has achieved annual returns of 23.58% over one year, 9.56% over three years, and 11.53% over five years. The latter option, available to retail customers, has achieved returns of 22.2% over one year, 8.6% over three years, and 7.2% over five years.

Foolish takeaway

Every $10,000 invested in the fund for Commonwealth Bank Group employees would be worth over $17,200 after five years. In comparison, $10,000 invested in the fund that Commonwealth Bank offers retail customers would be worth less than $14,200 after five years.

Investors should consider prudently investing their superannuation in their own diverse stock portfolio, rather than investing it with a superannuation fund. For those who aren’t ready to make that move, make sure you think carefully about the organisation managing your superannuation — you worked for that money.

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