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Study reveals inconsistent reporting of super fund returns
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5 July 2005 
 
A study, commissioned by The Institute of Chartered Accountants, of 12 of Australia’s largest retail superannuation funds has shown inconsistencies between the funds’ product disclosure statements - the statement used by investors to make investment decisions.  
 
While the statements comply with the Investment and Financial Services Association (IFSA) standards they do not easily allow people to make comparisons between fund performances.  
 
The Institute understands that IFSA has reviewed their performance standards, and continues to review them, however it is calling on the industry participants to fast track the adoption of these standards - especially in light of the recent choice of superannuation legislation.  
 
The Institute’s Manager of Financial Planning and Superannuation, Hugh Elvy, said if individuals were shopping around for a new super fund, it would be difficult for them to make an accurate comparison between two returns given the inconsistencies identified during the review.  
 
The three key inconsistencies identified were:  

  1. Variations in the accounting periods;
    2.  
  2. The period over which performance was measured; and
    3.  
  3. The provision of out of date performance figures.
 
“It is very difficult for the public to compare like-with-like when assessing fund performance given different accounting periods are adopted by companies.  
 
“While most superannuation fund returns work off a 30 June period, some also quote 31 December and 31 March. When comparing funds, people should be sure to compare funds with the same accounting period or at least be aware that the figures are reflecting different market conditions,” Mr Elvy said.  
 
The study also exposed that performance figures provided were soon ‘out-of-date’. While this is to be expected, because super fund product disclosure statements are static by design, the Institute has issued a warning and urged people to look for a ‘period end date’ to ensure the figures they are reviewing are current. It also has called on the industry to set a more transparent approach to reporting performance figures and as a minimum suggests that funds be responsible for sign-posting people to current performance figures.  
 
Superannuation shoppers have also been warned about large time variations in which fund performances are measured. The analysis revealed that funds regularly displayed performance across one, three and five years. However, some funds displayed performance results over two, four and six year periods. As such, the Institute recommends that funds adopt a standardised period to allow consumers to make consistent comparisons. The Institute also emphasises the importance of superannuation shoppers focussing on longer-term results.  
 
Asset allocation was another area identified which is likely to cause confusion. Super fund ‘asset allocation’ looks at asset classes such as shares, property, fixed interest, cash that can be Australian or international.  
 
The Institute recommends that when comparing funds, superannuation shoppers make sure the overall mix of growth assets (shares and property) and income assets (interest, cash and bonds) are broadly the same. This can also be significant where funds with like names (eg Balanced or Growth) have large variations between growth and income assets and within growth assets (eg Australian vs. international shares).  
 
“There is no point comparing a fund that only invests in growth assets with another that focuses on income assets. Similarly there is little value in comparing the performance of Australian growth assets against international growth assets,” he said.  
 
Mr Elvy has advised investors to seek professional guidance from a qualified adviser.  
 
Leading research house and independent provider of investment portfolio information, Morningstar, conducted the study.  
 
Chartered Accountants Top 10 Tips to Help Superannuation Shoppers  
  1. Past returns are no guide for future performance. They can however help people understand characteristics of the investment option you are considering;
    2.  
  2. Ensure that the returns you are comparing are to a common end date;
    3.  
  3. Look for common time periods e.g. 5 years;
    4.  
  4. Focus on longer-term results, a minimum of 3 to 5 years is advisable;
    5.  
  5. Make sure the funds have broadly the same exposure to growth assets;
    6.  
  6. Identify any big differences in the mixture of growth and income assets;
    7.  
  7. Check that returns have been adjusted in common fashion for tax and ongoing charges. While most returns are quoted net of fees and charges, the level of charges can vary as can the way they are deducted. For example some funds will quote returns after investment and administration fees while others will quote returns after investment fees but before administration fees;
    8.  
  8. Get professional investment advice before making any decision about superannuation;
    9.  
  9. When comparing returns between funds, check carefully whether one fund’s return is based on a crediting rate and the basis for the other fund’s return especially if the return is calculated on the basis of changes in unit prices from one time period to another; and
    10.  
  10. Check carefully whether the fund manager is using pre-inception returns. Just because you see a five-year return it does not mean that the product is five years old.
      11.