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Heron’s ERF Ratings Announced - AUSfund does it again

Released: 4 May, 2011

The Heron Partnership has announced its Heron Quality Star Ratings assessment of Eligible Rollover Funds for 2011 and AUSfund has been named the Top Rated ERF. SuperTrace and ISPF have been judged as “outstanding” and awarded 5 Heron Quality Stars. This is Heron’s sixth annual ERF assessment.
 
The Heron study again expressed concern that there are too many ERFs, with just five funds holding 90% of all assets, and fees on average over double full service retail funds.
 
The Heron Partnership’s Managing Director, Chris Butler, said “We are very pleased to congratulate AUSfund on being assessed by us, for the fifth occasion, as the Top Rated ERF Product. Our congratulations also go to SuperTrace, which is closing the gap on AUSfund, and ISPF for being awarded 5 Stars.” 
 
Top Rated
Eligible Rollover Fund
Australia’s Unclaimed Super Fund (AUSfund)
 

5 Star
Eligible Rollover Funds
ISPF ERF
SuperTrace ERF

“We are also very pleased to congratulate AERF, AMP ERF, AON ERF, NPT, Public ERF andSuper Safeguard for being awarded 4 Heron Quality Stars due to them being judged as “commendable” products. This is the first time AON ERF and Public ERF has received this recognition”, Mr Butler said. 
“The combined assets in ERFs at 30 June 2010 were $5.4b compared with the peak of $5.7b at June 2007, whilst the number of members continues to increase. At June 2010 there were 6,128,000 ERF accounts, which is a 2.6% increase on 12 months earlier. Over the past 5 years assets in ERFs have increased by 8% whilst the growth in members has been almost 40%.
Methodology and Scores
The Heron Partnership utilises a holistic methodology to assess and rate the various components of an ERF based on 4 key Areas of Importance. These Areas of Importance and there weighting are, Organisation (10% weighting), Impact of Fees (20% weighting), Investment Arrangements (30% weighting) and Relocation Activity (40% weighting).
Through Heron’s assessment, the ERFs that received the highest scores in each Area of Importance were:
Organisation: AUSfund (Other strong performer was SuperTrace)
Impact of Fees: SuperTrace (Other strong performer was Advance)
Investment Arrangements: Public ERF (Other strong performer was
AUSfund)
Relocation Activity: AUSfund and SuperTrace (Other strong
performer was ISPF)

Heron reported that through the assessment process they found the ERFs very responsive and transparent. Many continue to make improvements to their product, in particular, in terms of their proactive activities to locate account holders.
Wendy Barton, an Executive Director of The Heron Partnership again led the latest ERF assessment process. Ms Barton said “We noticed a significant improvement in both the effort and results achieved regarding relocation activities. About 150,000 members, representing $147m, were located and moved out of the ERF. Cross fund matching is used more extensively and all have established information access through their web site with PDS and annual reports available. Half of the ERFs now allow individuals to search for potential lost money within the ERF web site and most now provide links to the ATO site for further searches.”
“However, we continue to have the view that the size of the market does not require 16 ERFs. It is interesting to note that the 5 largest ERFs represent 90% of total ERF assets, at an average size of about $970m. They range in size from $343m to $1.6b. The average size of the other 11 ERFs is about $50m, ranging from $1.5m to $205m. The average balance in ERFs is just under $2,000, whilst the average in the 5 largest is about $1,500. We anticipate that there will be at least two ERFs less over the next year as a result of the sale of various organisations.”
“We are also concerned that many ERFs continue to charge high fees. Fees vary between funds and size of a member’s balance, but on average it is well over 2%. By way of comparison, a retail superannuation fund with all bells and whistles, including investment choice and regular contributions with the full support of call centres etc would have an average fee around 1% of assets. For the average ERF balance of $2,000 the average fee is 2.6% rising to 11.4% for account balances of $100.”
“Based on our estimates, fees totalled about $128m of which about $50m was deducted from member accounts and $78m was deducted from earnings before the crediting rate was declared. About $293m was credited as earnings on invested assets. Interestingly, several ERFs altered their fee basis, with more asset based fees appearing, which deliver a more equitable fee distribution.”
Highlights of Heron’s assessment included;
  • Public ERF has outstanding investment arrangements with a crediting rate of 9.71% for the year. Investment objectives were all met and are soundly structured.
  • SuperTrace has the best fee structure overall, having regard to the fund profile, with a consistent fee of 1.55% of assets regardless of account balance size.
  • SMERF has the lowest fee structure for account balances of $2,000 and $10,000 being 0.86% and 0.57% respectively.
  • Advance RSA has the lowest fee basis for balances of $100 and $1,000 at a consistent level of 1.20%.
  • AERF achieved the highest crediting rate of the two balanced investment options with 12.25%, whilst SMERF achieved the highest crediting rate of the nine conservative options with 8.25%.
  • AON relocated 6% of their members and SuperTrace relocated 7% of their assets. Both representing the highest percentages of any ERF.
  • AUSfund and SuperTrace relocated the most members; about 70,000 each.
  • Investment objectives only met by five of the sixteen ERFs and the crediting rates were below the median in most cases, after allowing for deduction of tax and asset based fees.
Mr Butler concluded “The primary goal of the Heron Quality Star Ratings is to provide a realistic and objective representation of a product’s strengths and weaknesses. The ratings are based on feature specific benchmarks, which guide Heron’s assessors to rate the feature objectively, with all products being rated on the same basis. The ratings for each feature are aggregated to an overall numeric rating for each product.”
The Heron Quality Star Ratings have 5 levels as follows:
*****       Outstanding
****         Commendable
***           Good
**             Poor
*               Unacceptable