Overview
This is a summary of an interview with Kelly Kennedy, Wealth Advisor and Director at BDO, discussing critical factors to consider when comparing superannuation (super) funds. Kennedy highlights the importance of reviewing insurance, fees, features, performance, risk alignment, and estate planning to make informed decisions that can significantly impact financial outcomes.
Main Considerations
- Insurance in Super
- Many people are unaware that their super accounts often include insurance such as life, total and permanent disability, and income protection.
- Insurance does not automatically transfer if you switch super providers; you may lose coverage if you don’t check.
- Example: Some clients discover multiple super accounts, with insurance in one they didn’t realize existed. This can be beneficial if a claim is needed, but unnecessary insurance can also erode your balance over time.
- Fees and Features
- Assess the fees you are paying and whether you are utilizing the features provided (e.g., educational webinars, a wide range of investment options).
- Higher fees may be justified if you value certain features; otherwise, you might be paying for services you don’t need.
- Example: Paying extra for a broad investment menu is only worthwhile if you actively use it.
- Performance
- Review the one, three, and five-year past performance of funds, but remember that past performance does not guarantee future results.
- Always compare funds with similar risk profiles and over the same timeframes (“apples for apples”).
- Risk Alignment
- Ensure your investments match your risk tolerance.
- Example: A client with $1 million in super was mostly invested in cash without realizing it, potentially limiting long-term growth.
- Features and Services
- Consider what is important to you: Do you want full control over investments, or are you satisfied with a pre-mixed, diversified option?
- Funds offering more control often charge higher fees.
- Estate Planning
- Superannuation does not automatically become part of your will.
- You must inform your super fund who should receive your super benefits, and there are restrictions on who qualifies as a beneficiary.
- If you wish for non-dependents to benefit, you need to nominate your estate as the beneficiary, so it is distributed according to your will.
Impact of These Considerations
- Choices regarding insurance, fees, and investment options can have a substantial long-term impact on your super balance.
- Overlooking features or not aligning risk can lead to missed opportunities or unintended financial consequences.
Practical Examples
- Clients have discovered unexpected insurance coverage or unnecessary fees through careful review.
- Misalignment between investment choices and risk tolerance can significantly affect long-term outcomes.
Final Note
Regularly reviewing your super fund with these considerations in mind ensures your retirement savings are optimized for your needs and circumstances.
