What is a SelectingSuper Fund Quality Assessment Rating?

A SelectingSuper Fund Quality Assessment Rating is a review of a super fund’s quality. It is an independent stamp of approval by one of Australia’s leading financial services research companies, Rainmaker Information.

The quality assessment however is not financial advice and it does not tell you to put your money into that super fund. But it does say that a particular super fund delivers what it promises and delivers it to a very high standard. The question for the member, and their financial adviser if they have one, is to decide if this particular super fund offers the range of features and services that they need and want.

The research engine behind SelectingSuper, Rainmaker, has been reviewing super funds since 1992 and is an industry leader in how to make sense of, judge and assess super funds and financial services. You’d be hard pressed to find a more influential superannuation research firm, or one that has inspired so many followers and copycats.

The techniques developed by Rainmaker are now used widely across the industry and taught in Australia’s universities. Rainmaker advises governments, industry regulators, industry associations and interest groups. They have special relationships with most major government regulators, and with consumer groups such as the CHOICE, formerly known as the Australian Consumers Association.

Because of the research firepower of Rainmaker, SelectingSuper is one of the very few superannuation research groups with its very own Learning Centre.

Reflecting this depth of research, Rainmaker’s and SelectingSuper’s super fund databases are jam-packed with information about super funds, which is why even the funds themselves watch what they have to say. This is why Rainmaker also provides information tables about investment performance, fees, insurance and extra benefits to dozens of magazines and newspapers around Australia that are operated by media groups including Australian Consolidated Press, Fairfax Newspaper group, News Limited and Macquarie Publishing.

SelectingSuper is progressively assessing as many super funds as it can, though it can’t force funds to subject themselves to a SelectingSuper review. But if a fund has allowed SelectingSuper to review it, then it is definitely a very good sign that this fund is serious about winning your business and serving you.

In the ratings quality assessments, SelectingSuper focuses upon funds that members can actually join or other selected large funds many people may already be members of. In other words, industry funds, public sector funds, selected large company funds, corporate master trusts and personal master trusts.

The AAA Fund Quality Assessment

There is only one level of SelectingSuper Fund Quality Ratings: AAA

Funds either meet the standard or they do not. To achieve the AAA standard a super fund has demonstrated to SelectingSuper that it is an exceptional quality super fund. This means the fund has passed a comprehensive range of “best practise” measures and benchmarks ranging from the organisation running the fund, to administration, communications, investment mix and extra services.

The philosophy behind the SelectingSuper Fund Quality Assessment is the way we recognise what makes it different. Super funds are many and varied. They offer different services, have different features, have different arrays of investment and insurance options, have different communication styles and practices, and different fee regimes. They serve different people differently.

This means that some funds may aim to provide a simple and streamlined product; some funds may aim to provide a premium service; and some funds may aim for something in between. And because different people look for different things in their super funds, so funds with the most options are not necessarily the best, and funds that are the cheapest are not necessarily the best either.

So assessing funds is not just about finding the ‘best’ funds, because different people can have different specific needs, resulting in not all funds being suitable for all people.

It’s also not just about ‘value for money’ either because to assess this SelectingSuper would have to impose their own opinions about what features, services and investment menus a member should buy from their super fund. To do this means SelectingSuper would be telling members what they should do rather than helping them see what funds are doing so they can judge them for themselves.

SelectingSuper’s Fund Quality Assessments review and assess all the features separately and then integrate the outputs into a combined quality assessment rating. The elements examined and the proportion of the overal assessment score driven by each element are:

Major Criteria		Sub-component	Assessment Share
Corporate Management		Organisation Strength	8%
		Administration	8%
		Communications	9%
		Subtotal	25%
Investment Mix		Investment Analysis	17%
		Manager Quality	17%
		Processes	16%
		Subtotal	50%
Extra benefits and services		Insurance	20%
		Extra Services	5%
		Subtotal	25%
Total			100%

 

Organisational strength

Organisational depth, experience and structure are fundamentally important when selecting a super fund. Are the assets held securely? Is the organisation running the super fund credible, experienced, trustworthy, and do the directors or senior management have problems with conflicts of interest? Are there appropriate checks and balances in place? How experienced are the directors and their management? Who are the service providers?

Because Rainmaker has been researching super funds since 1992, we often know more about super funds and their history than many people working for the funds themselves.

Administration

Administration services and support are one of the most visible differentiators between super funds. Can employers and members rely upon their super fund to properly process their contributions? Are members’ statements accurate and timely? Is the information supplied to members correct?

A super fund’s administration processes, while they may not be the most glamorous aspect of a super fund, are nonetheless a very important operational aspect of a fund, and can make a real difference between satisfied and dissatisfied employers and members. But administration shouldn’t be overrated either.
Too many funds want to spend all day telling you about how good their call centre is, when all you want to know is how reliable their investment returns are. It’s a question of getting the balance right.
 

Communications

Superannuation can be — but doesn’t need to be — a complex product, and this makes it vital that a super fund communicates effectively with everyone who relies upon it. How often does the fund talk to its members? Are fund documents understandable? Are all fees and charges fully explained in language that real people can understand?

And do the funds follow industry best practice and government rules and guidelines? Does the fund’s website make sense? Is the fund open about how it’s performing, or does it keep secrets? Can employers and members easily contact the fund? How smoothly are any problems with members handled?

Investment mix

Members join a super fund so that by the time they retire they will have, hopefully, enough retirement savings to support them. Super funds deliver this through a mix of investment returns and by providing investment solutions. Without strong and consistent investment returns, super funds cannot deliver their fundamental promise.

The true measure of investment performance is what is delivered into a member’s account each and every year — investment returns after all costs, fees and taxes have been deducted. For example, if a fund is earning 20 per cent does it really matter that they charge you 2 per cent in fees? Would you rather pay 1 per cent in fees and only get a return of 5 per cent? The acid test is therefore returns after fees and money in your pocket.

While most members in some funds may just use a fund’s default investment option, this clearly isn’t true for all funds and it isn’t true for all members. This is why Rainmaker also examines all the investment options and the investment managers used by the super funds to drive all the other investment options as well.

And because your fund’s investment returns are so important we spend a lot of time understanding each fund’s investment strategy, its menu of choices, its returns credentials and which investment managers they use. Rainmaker has also pioneered research in Australia that has shown that super funds with good long term performance records usually have them for a reason. And while we don’t give AAA ratings based on just returns, we of course expect top rated funds to achieve good returns. We are sure you would as well.

The investment side of your super fund therefore has several elements. In the SelectingSuper investment assessment we review investment mix and the construction of the investment menu, we analyse the investment returns and assess the quality of the investment managers used by the super fund, and we review the investment processes and how well they are explained and justified.

Insurance

Nearly all super funds now offer at least some form of insurance, be that death and TPD insurance, death-only insurance, and increasingly income protection insurance. Some funds are even starting to offer other types of insurance as well.

Insurance options offered by super funds are therefore an important factor when choosing a super fund because insurance is such an important aspect of ensuring a member’s financial well-being. In fact, for many employers and members choosing a super fund, insurance is nearly as important as investment performance itself.

However, it is no longer enough to just offer insurance as the insurance must be reasonably priced and explained. How flexible is the insurance is just as important too. Members come in different shapes and sizes, and insurance should as well.

Extra services

Why wait until you retire to take advantage of your super fund? Super funds can offer so much more than just compulsory tax-effective saving. Of course, investment returns are the fundamental driver that makes your super fund successful, but members should also be able to access other services and features, such as financial planning, home loans, managed funds, allocated pensions, spouse accounts, education savings plans, and shopping and travel discounts.

But remember that members should never buy a super fund just because of its extra services. However, if a super fund delivers good investment returns and also delivers good extra services, then why not use the extras as much as you can?

Fees and charges

SelectingSuper assesses super fund fees in several ways: first, through their after-fee returns, sometimes called crediting rates, which by definition are investment performance returns after all fees and taxes are deducted; second, through the cost of insurance premiums; third, in relation to the flexibility of the investment, insurance and extra services menus, including whether the fund comes bundled with access to a financial adviser.

This means SelectingSuper doesn’t just simplistically rate a fund’s fees as good because they are low or bad because they are high. Instead, the more important thing is what members receive for the fees they pay. In anycase, funds that may seem expensive at face value can actually offer heavily discounted fee deals, thus making them surprisingly cost competitive, depending of course upon the customer and how they interact with the fund.

Conversely, funds that have low fees can have them because they are streamlined and simple. For example, a direct-sell-no-advice funds sold centrally through employers should be expected to be low cost. The real issue with fees is therefore not what they are but are they over-priced for what you get?

Because of this, it is more important for potential members to understand what a fund’s fees are and to understand what they get for the fees so they can judge for themselves if the fund is worth the money. And there is no point a fund having low fees if not many people can join it because it’s not public offer or it only operates in a certain industry or part of the country.

SelectingSuper therefore does not assess fees directly in a fund’s Quality Assessment. But because fees are embedded and reflected in many other parts of the super fund that we have already assessed, research has shown us that this is a much smarter way to attack this issue.

Disclaimer

SelectingSuper Fund Quality Assessments review a super fund against a combination of industry best practice benchmarks and the wider market. The Quality Assessment takes into account research and opinions using a mixture of both quantitative and qualitative assessments. The Quality Assessments are not statements of future performance and do not constitute specific investment or financial advice.

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