Kicking the tyres of your super fund is not that difficult, but you first need to learn a few tricks so you know what to look for.
By Alex Dunnin and Andrew Keevers

KEY POINTS
When you start looking for a new super fund to join, you will quickly come across terms like 'industry fund' and 'master trust'. The best way to make sense of your super fund is to look at the features it offers you. Not all funds are the same, so look for one that suits you. Choose your super fund like you choose your job, your car or your house; use your head as well as your heart.

The challenge for employers and members when choosing a super fund is to find one that suits them.  This is because not all super funds are alike, and so the challenge is to find one you like and that has the features you want. The lingering problem is that many people think understanding and comparing super funds is too hard. But the reality is that differentiating between super funds is not that difficult. With just a little guidance, it is actually quite easy to start meaningfully 'kicking the tyres' of almost any super fund.  

Recall that a superannuation fund is nothing more than a savings fund that you invest in during your working life so that by the time you reach retirement you will have enough money accumulated to help pay you a reasonable lump sum or pension. So super is nothing more than a special savings fund for the specific purpose of saving for your retirement. 

The question is, how do funds do this? The answer is they do this by making wise investment decisions, either themselves or in consultation with their own advisers, and by utilising the services of quality investment managers who then invest the fund's money on behalf of members to earn good rates of return. This suggests the best super funds are those that achieve the best rates of return for their members.

Funds are not all the same

But is it this simple? If all super funds had the same features, the same number of investment and insurance choices, and the same fee and servicing structures, then the answer would be a resounding yes. But they don't, so the answer is no. When you start looking for a new super fund to join, you will quickly realise you probably won't be able to join a government fund or an in-house corporate fund unless you already have a relationship with them (such as a relative works there, or you worked there previously). The result is that your choice will really be between corporate or personal master trusts and industry funds. You will recall from earlier sections in this book that industry funds are super funds set up to provide superannuation to people who work in a common industry. They are usually operated jointly by employer associations and unions closely associated with that industry. Master trusts, on the other hand, are super funds operated by commercial players such as banks, life insurers and financial planning groups.

But are industry funds and master trusts really that different once you strip off the top layers of who runs them? This is actually a much harder question than it seems. This is because some industry funds now offer a 'master trust' version of themselves - albeit for a slightly higher fee - while some master trusts call themselves industry funds. Adding to this, the term 'master trust' simply means a fund that is held together underneath an umbrella trust deed and so is able to offer a choice of investments, which effectively means that all funds (even industry funds) that offer investment choice are master trusts anyway. And some in-house company funds even call themselves 'master funds'. Confused? You should be.

Arguments about master trusts versus industry funds are therefore really quite silly. But because superannuation experts like to talk in these terms, it will
help if you understand what they mean and if you know something about what they are trying to say to you. The key point here is that while a super fund's market segment or label is helpful in understanding how a fund thinks and where it came from, it doesn't actually tell you very much about what the fund does, or if it's any good. To establish this, you need to look inside the fund. 

Practical differences

The best way to make sense of your super fund is to look at the features it offers. The table on the previous page compares the features of a typical industry fund with those of a typical master trust. As you can see, there are many strong similarities, and strong differences. The most crucial differences that stand out are that master trusts usually (but not always) have more investment options, more insurance options, and usually come with the automatic support of a financial adviser. And this usually translates into higher starting (or base) fees, because it is simply more complicated to operate a super fund with 50 or 100 investment and insurance options than one with only, say, three investment options and one insurance option.  

Industry funds are also usually cheaper than master trusts because they do not have high sales costs to pay, such as agents' commissions and advertising costs. But equally, master trusts - because they usually have financial adviser fees built into their prices - are much more likely to be associated with a financial adviser network, and so if you want or need this support you may find a master trust suits you better.  Some master trusts can even offer fee discounts to some employers and some members that can actually make the prices much more even. This means the fee differences are not always what they initially seem. Indeed, if your company has enough employees, the fee differences between most industry funds and many corporate master trusts all but evaporates.

Master trusts also have a longer history of offering more investment options and so their regular investment reporting services are usually more sophisticated than for most industry funds, though this is starting to change. Following on from this, as master trusts operate more investment options, they usually achieve better investment performance in their specialist asset-class-specific investment options than do industry funds, which usually dominate the diversified investment options performance tables. (See the chapter on investment menus for more details.)  Illustrating this, industry funds usually take out most places in the tables for the best default investment options for super funds, but master trusts usually take out most places in the tables for the best specialist sector investment options. 

Similar to the story with the number of investment options, master trusts - with up to 100 insurance options - tend to offer more flexible insurance arrangements than do industry funds that offer up to 40. And, like the investment performance characteristics of industry funds and master trusts, there are also insurance price characteristics. For example, industry funds tend to offer better priced death insurance and combined death and total and permanent disability insurance for lowoccupational risk members, while for high occupational risk members the stakes are more even. Master trusts tend to offer price advantages for income-protection insurance policy premiums. (See the chapter in the book on insurance, and also be sure to contact your super fund or financial adviser for more details.)

There can also be big price variations between funds and you should always shop around carefully as some funds can offer insurance deals that are massively different to their competitors. The end result is that industry funds and commercially operated master trusts, in themselves, are not better or worse than each other. They are just different. And this difference is fundamentally about the breadth and flexibility of their options. The question, then, about which type of fund you should join comes down to what you want from your super fund.

Is not-for-profit better?

Industry funds often describe themselves as 'not-forprofit', meaning their fees generally match their costs as they do not seek to make a profit for any shareholders. On the other hand, master trusts - because they are commercial funds - must try to make a profit, and so they have to charge fees that are more than their costs. While being not-for-profit sounds noble, the hardnosed question is whether being not-for-profit makes a fund better, or does it just make it different? Indeed, not-for-profit funds invest to make profits for their members, and they use many service providers who are themselves very 'profit focused', and they even invest into profit-making companies (this is after all how they make money for their members). And because of all this, at SelectingSuper we don't believe being not-for-profit in and of itself makes the fund better. Instead, we strongly believe super funds should be judged on their features and what they deliver to members rather than what market segment or tribe they come from.

Reflecting this, the commercial or not-for-profit nature of a super fund merely describes how the fund operates, rather than being an indication of how good the fund is. A more important consideration is that many - but no longer all - industry funds require you to join through your employer. This means you might find that a top-performing, low-cost industry fund will not let you in because it is not public offer. If this happens, do not take it personally, as the exclusive employer-based nature of the fund is probably a big part of the reason why its fees are so low in the first place. But you should take heart, because many of the biggest and most dynamic industry funds are now public offer and will be happy to accept your super. SS

Funds are similar but different  

Factor	Industry funds	Master trusts
Business model	Not-for-profit	Commercial
Compliance type	Equal representation	Approved Trustee
Promoted by	Employer groups, unions	Banks, insurers, adviser groups
Adviser support	Limited but growing	In most cases yes
Fees & expenses	Low-medium	Medium-high
Extra services	Fair-excellent	Fair-excellent
Investment performance	Best for diversified options	Best for specialist options
Investment options	1-40	6-600
Insurance options	0-32	0-32
Complexity/flexibility	Low-medium	Medium-high

 Source: Rainmaker Information

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