180,000 Australians are doing it wrong

Retail super funds entice young workers with ease of access and other features – despite shoddy performance

a woman

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No, it's not what you think.

But what is a major concern is that 180,000 new accounts have been opened by retail funds including BT Financial Group's Super for Life, Australia and New Zealand Banking Group's (ASX: ANZ) Smart Choice Super and Commonwealth Bank of Australia's (ASX: CBA) Essential Super.

National Australia Bank (ASX: NAB) is the only big four bank that's missing out because it doesn't have a direct super product – Westpac Banking Corp (ASX: WBC) uses BT Financial as its weath arm. That's according to a new report, Investment Trends 2015 Member Sentiment & Communications Report.

What is concerning is that the bank's retail super funds generally charge higher fees than industry super funds. They may not seem that different over the short-term, but over the long-term could result in 180,000 Australians losing hundreds of thousands of dollars.

It seems more young workers are being lured into retail funds thanks to smart marketing and heavy advertising across many forms of media, including direct marketing to bank customers. It seems the ability to have all your finances in one place, accessible via one logon, is very appealing to many.

The ability to access it all via your smartphone is another appealing feature.

The problem many will find is that moving your finances to another institution will become more of a nightmare than it already is. Despite moves to make portability better, even moving savings accounts from one bank to another is a complex, time-consuming chore. That's great news for the big four banks. It means many of those customers are far more likely to stick with them, no matter how the banks treat them, or what their investment performance is like.

When most retail fund managers can't even beat the index before fees, there's 180,000 people who are going to be much worse off in retirement.

Foolish takeaway

When you have an industry fund like AustralianSuper that reported a 10.9% return for its balanced investment option for the financial year ending 30 June 2015, Australians have very little reason to switch to a product like BT Super for Life – which has generated annualised returns of just 4.4% since inception and charges fairly high management fees, in some cases above 3% on some options.

Here's how you could end up with thousands more in your super:

  1. Take an active interest in your super
  2. Consolidate all your super accounts
  3. Choose an industry super fund with low fees and rollover your super from your retail fund, or
  4. Do it yourself – if you have the will.

Editor's Note: This article previously referred to BT Investment Management (ASX: BTT) as the owner of BT Super for Life, which was incorrect. 

Motley Fool contributor Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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