Members of large corporate funds need to be warned about dangers of making super choice

Independent superannuation consultancy, The Heron Partnership, claims members of large corporate superannuation funds could be financially hurt if they exercise choice of fund.

"These people need to be warned that in many cases they would be paying fees double or treble the rate in the company fund," says Chris Butler, Managing Director, The Heron Partnership.

Research released by The Heron Partnership shows that for members in most company funds their combined administration and investment fee (based on multi-manager arrangements) will normally fall in the range of 1.20% to 0.65% of a members fund assets. This is very competitive when compared with retail funds, both corporate and personal, where the fees will normally average around 2.00% plus, which can be as high as double the fees and costs that would apply in a small corporate fund and around three times for a large fund (see table below).

"Employers throughout the country have been very busy over recent months determining their response and strategy to accommodate choice of fund. Employers need to provide easy to understand information to their employees and part of this needs to be a warning about hasty decisions," Mr Butler said.

Mr Butler went on to say, "Based on outcomes of outsourcing tenders managed by The Heron Partnership for employer clients, the larger the employer organisation the larger the difference between the fees in a company fund compared with a "retail" fund. Employees therefore need to tread carefully and make decisions around "choice" in a holistic manner".

Besides fees and costs, The Heron Partnership lists 6 other Areas of Importance that employers and employees need to check when considering alternative superannuation arrangements:

• Investment arrangements;
• Insurance arrangements;
• Organisation and product overview;
• Communications;
• Ancillary benefits; and
• Contributions;

"Particularly as choice is introduced, employers will want to assist their employees as much as possible. However, employers cannot step across that line between information and advice and as a consequence we anticipate an increase in the need to provide employees with work place financial services and advice".

To assist financial planners provide a comparative and independent assessment of an employees company fund compared with other products the employee may be considering under "choice", Heron is about to launch Heron Advisor, which includes a comprehensive tool enabling tailored fund and benefit comparisons at a member level. Heron Advisor will be launched by a number of financial institutions and financial planning groups over the next few months.