Hesta and First State Super (nee Health Super) are household names for doctors.
They are both “industry funds”. That is, super funds set up after the historic 1984 Hawke government union accord to receive the initial 3% of mandatory super contributions. They were originally called “union funds” but over the decades morphed into “not-for-profit public offer superannuation funds”, which means they now accept anyone as a member. We will call them “industry funds”.
Industry funds are good.
Industry funds have been shown to outperform the institutionally owned so called “retail funds.” Chant West says industry funds dominate the investment performance tables with as many as nine out of the top ten spots in 2018.
Over a 40-year working life a superior fund performance of just 0.40% per annum could mean an extra $100,000 cash for most doctors. Precision is difficult because it depends on how much is contributed but our estimate of $100,000 may be on the conservative side for most doctors and their partners.
Why such a big difference? It’s all to do with lower costs and being not for profit. All the big super funds invest pretty much the same way. But industry funds have lower costs and do not pay dividends to shareholders so their net returns can be better.
Industry funds are well run. They are not for profit and have employee representation on their boards. This member orientation is philosophically reassuring and sits well with most medicos.
Industry funds are not without their critics. Most financial planners are dead set against them. The financial planning industry is 80% controlled by banks and life offices, so the financial planners’ commercial interests are diametrically opposed to industry funds. They are the competition.
Eddie Maguire won’t tip against Collingwood, and many financial planners won’t recommend industry funds to their clients. It’s obviously not in their clients’ best interests, as mandated by the Corporations Act. But it is the reality of the financial planning industry.
Industry funds have been criticised for having poor service, particularly when a member dies. However, at Curve we have not seen one example of poor service on death benefits.
One valid criticism involves income protection. Industry fund income protection insurance is usually inadequate for doctors. Not big enough and not long enough. Doctors are well advised to have additional income protection or to ensure their specific needs and criteria for insurance is met along with a sensible sum insured (it does not have to be the underwriter’s maximum!).
Industry funds provide low cost universal life insurance, and you can increase the sums insured easily on line. It can potentially be the cheapest way to get life insurance.
For investment options, provided there is comfort in taking risk and a doctor has a long investment time frame, exploring the growth and high-growth investment options can make sense. The maths of the matter means you will likely do better. And, paradoxically, over a ten-year plus period it’s less risky too.
One weakness is advice capability. Industry funds have low adviser: member ratios. Getting advice, particularly non-fund advice, can be hard. But this is changing, and the industry funds homogeneous memberships are well suited to robo-advice and other disruptive and growing low cost systemised advice services.
Some doctors are really into investing. Others are not. Whatever your inclination be assured that if you stay in your industry fund’s “high growth” mode for the whole of your career your super will almost certainly do better than a retail fund.
It’s all to do with the costs. Industry funds have lower costs. And it’s all to do with profits. Industry funds pay profits back to members, not shareholders.
You can learn more about why industry funds are so hard to beat here: Why industry funds are hard to beat.
Interested in comparing super funds?
Canstar have an on-line tool for comparing super funds and you can access it here: Compare super here.
General advice warning
This article is general advice only and you should seek specific advice from a financial planner at Curve before acting on its contents.