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What’s the difference between industry, retail, and self-managed funds?

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I have gone to a number of financial advisers and lectures on super and I just find they use jargon and language that I don’t understand. Some people refer to retirement savings accounts, industry funds, retail funds, self-managed funds, etc. What is the difference?

Well, they’re all super funds and let me give you a tip before I clarify each type of fund – don’t be afraid to tell advisers or anyone giving a lecture that you don’t understand. If they treat you poorly for being honest, just dump them.

A retirement savings account is a super fund account that has been made to operate like a bank account – they’re simple, low-cost and low-risk. They aren’t popular because they offer low returns to match the lower risk.

Industry funds can be called union funds but that ignores the fact that non-union people can join them. They originated from the union movement and are low-cost and not-for-profit, but don’t think beefy blokes in overalls select the investments. They outsource to investment experts what they invest in and some funds can be super performers while others can be ordinary, but the low cost aspect has been a competitive advantage for these funds.

Commercial or retail super funds are run by the likes of the banks, insurance companies and other financial institutions. They run them for profit and have a big exposure to the stock market and bonds, while the industry funds can be a little more adventurous with their investment decisions and can put their money into direct property and even businesses. These tend to be more costly than industry funds but they’re creating super fund products to compete more evenly on cost.

Financial planners have tended to support these funds because industry funds have not paid them commissions and given them other support, but there’s evidence that this is starting to change.

There are also self-managed super funds (SMSF), which are set up for the members who become known as the trustees. There can be no more than four members, and they can’t be employees unless they’re relatives and no one can be paid for the work done in the fund, however a fund can pay for work done by a non-trustee for the trustees’ fund. Here the members decide how they invest their money and become their own fund managers. They can invest the money with other fund managers but generally they buy shares, invest in bonds and term deposits and can even invest in property.

There are a lot of rules to follow if you decide to go down this path and you either have to do your own homework or get help from an adviser. The more money you have, the more economical it can be to do a SMSF with an adviser for support. However, you should always be aware of the total costs of trying this DIY fund with an adviser and simply relying on an industry fund or a commercial fund.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Wednesday, June 15, 2011

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