Heron Quality Star Ratings Announced for 2007/8

Released: 11 July, 2007

The Heron Partnership has announced the Heron Quality Star Ratings for 2007/8 for both Corporate and Retail superannuation products.  Of the 164 individual products assessed the highest award of 5 Stars went to 25 Corporate products and 34 Retail products.

Since the 2007 Heron Quality Star Ratings were released in January, a further 42 products have been assessed.  Of the products being assessed for the first time, Suncorp Easy Super Employer Sponsored Superannuation and Energy Industries Superannuation Scheme (Accumulation Scheme) were all awarded 5 Heron Quality Stars.  A number of products moved from a 4 Star rating to 5 Heron Quality Stars, including Skandia One Corporate Solutions, Colonial First State FirstChoice Personal Super, HESTA Super Fund, Skandia Global Retirement Solutions and Tasplan.

The Heron Partnership’s Top 10 rated Retail products comprised 2 commercial master trusts and 8 industry funds, whilst the Top 10 rated Corporate products included 7 commercial master trusts and 3 industry funds.

The superannuation products rated as “outstanding quality” and therefore awarded 5 Heron Quality Stars are (in alphabetical order):

 The Heron Partnership’s Managing Director, Chris Butler, said, “The superannuation market is particularly competitive at present with consumers being the winners due to the overall improvement in the quality of super products, lower insurance costs and very good investment returns being achieved across the board.  However, on the other side of the ledger, many products have increased their investment management fees which are not always completely visible to members, as fees are commonly deducted prior to the unit price being determined.  There have also been an overwhelming number of products that have introduced investment performance manager fees.”

There are a number of fees and charges that impact the operation of a superannuation fund, including investment fees, administration costs, insurance premiums, contribution fees and advisor fees.  These fees and charges can be structured quite differently from product to product and can vary materially from product to product.

Heron’s analysis of costs and charges, excluding insurance costs and any adviser fees an individual has agreed to pay their financial planner, shows material differences between some products.  To illustrate this point, Mr Butler said, “The impact of fees and charges over a 25 year membership period applied by the thirty-three 5 Star rated retail superannuation products, for example, results in the lowest cost product, AGEST, producing a retirement benefit some 15% greater than the average retirement benefit produced by the thirty-three products, assuming the same contribution and investment returns.

Mr Butler said, “Insurance is a prime example of where we have seen improvements, with many products in recent times either conducting formal insurance tenders or negotiating directly with their insurer to benefit from the competitive environment.  Improvements include higher cover for the same cost, TPD definition choices, higher maximum death, TPD and SCI levels, improvements in the accidental death and TPD cover provisions during the medical assessment period, higher AAL’s and extensions to the automatic cover amounts and period.  There has also been a move to more products having “opt out” arrangements, meaning that members failing to make a decision will receive insurance cover”.

Of all Corporate products assessed by The Heron Partnership, based on range of features and flexibility, ING Corporate Super, BT Lifetime Super - Employer Plan and Legg Mason’s The Corporate Superannuation Master Trust achieved the highest ratings for their insurance arrangements, whilst Cbus, AGEST and CARE achieved the highest insurance rating amongst the Retail products.

Other improvements to products have included:

• Making financial planning advice more accessible through call centres and face to face meetings, usually provided on a fee for service basis.
• Greater focus on ease of transfer for members leaving corporate funds and being automatically placed into a products personal division, with continuity of insurance cover.
• Some restructuring of personal division fees.
• Clearer PDS documents, which are easier to read and understand and more concise.
• More extensive communication and education material, supported by programs of events through the year.
• Improved websites with easy to access key documentation.

“It is important to remember that product enhancements have been delivered at a time when the sponsors have been under enormous pressure to reconfigure systems so that they comply with the “Better Super” initiative.  Although not apparent yet, it is likely that the costs to comply, which have been significant for a number of service providers, may in some form, be passed onto members” Mr Butler said.

The transition to retirement strategies for those aged over 55 are now well into play and have triggered a review by product sponsors to ensure they can meet the needs of members through their non commutable allocated pension offerings.  Mr Butler said “Financial planners and consumers in general are finally becoming more aware of the advantages of this strategy and we have no doubt that there will be increased activity in this market over the next 12 months.  Sophisticated software has been developed to assist financial planners explain and optimise this strategy for their clients”.

When releasing the ratings for 2007/08, Mr Butler, said “The primary goal of the Heron Quality Star Ratings is to provide a realistic and objective representation of the strengths and weaknesses of a product.  The ratings are based on feature specific benchmarks which guide Heron’s assessors to rate the feature objectively, with all products therefore being rated on the exact same basis.  The ratings for each feature are aggregated to an overall numeric rating for each product”.

The Heron Partnership’s product research and assessments are provided through their Heron Advisor internet based research service.  This research service is utilised by an increasing number of product issuers, dealer groups and financial planners as a superannuation research tool for super “choice of fund” advice, corporate super tenders and super switching compliance”.

The Heron Quality Star Ratings have 5 levels as follows:

The Heron Quality Star Ratings have 5 levels as follows:

• 5 Stars - Outstanding
• 4 Stars - Commendable
• 3 Stars - Good
• 2 Stars - Poor
• 1 Stars - Unacceptable

Heron utilises a holistic methodology to assess and rate the various components of a superannuation fund, grouped under 5 Areas of Importance developed by Heron of Investment Arrangements, Contributions, Ancillary Benefits, Communications and Insurance.  Heron assesses about 150 features under these Areas of Importance.
 

Details of the Heron Quality Star Ratings, including the assessment methodology and products awarded with 5 Heron Quality Stars, are featured on The Heron Partnership’s web site.  In addition, through the Heron Advisor service, subscribers are able to access the Quality Star Rating for all products as well as the detailed product research.