Will COVID-19 cause super fund holders to pay more attention to their investments?
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Working age Australians have typically had a laissez-faire approach to their superannuation, but COVID-19 could change this.
This week Russell Investments revealed the results of a survey of 3,000 working age Australians (without financial advisors or SMSFs) that was conducted in January.
The survey found that 67 per cent did not know how their super was invested or just left it to their fund’s default approach.
Thirty seven per cent believed their fund managed their investments based on their own personal circumstances. This view was affirmed even if they did not actively choose how their super was invested.
Since January, the effect of the the rapid five-week plunge of global markets spilled over to super funds, spooking investors.
And with people now being able to access as much as $20,000 of their super over this financial year and next, the super fund pool is being significantly depleted.
As of May 26, 1.65 million Australians have withdrawn some of their super funds to keep their heads above water. Of the total, over 400,000 withdrew their super in the last fortnight, indicating the crisis could be far from over.
But the impact may not be all bad, with experts expecting hardworking Australians will start to take a greater interest in just how their super is invested, for awhile at least.
Tony Negline, superannuation leader at Chartered Accountants Australia and New Zealand, was not surprised by the Russell Investments data and put it down to a perception that superannuation was best left to the experts.
“I think there is a very healthy cohort of superannuation fund holders in Australia who will, before retirement, do whatever they need to do to avoid taking active interest in their money,” he told Stockhead.
“The reason for that is many and varied. Part of it is that they look at the markets which look complex and difficult.
“From a regulatory perspective, it’s not easy to navigate even for professionals who do this every day. And the tax system is another elaborance.
“When you melt all those things together they say: ‘I don’t have the time and energy and even if I did have time I might as well leave it to people who do it [investing] every day’.”
Negline thinks the crisis may encourage investors to pay more attention. But as to whether it would differ from other economic crashes he was less certain.
“Every time there is a market correction, that encourages some people to take more active interests in managing their money and attempt to fly to safety,” he said.
There are obviously investors that take an active interest in their super. Australian Ethical Investment (ASX:AEF) thinks most of its members fall into this category.
“Most of our members actively seek us out directly because they want to make a positive impact through their super and other investments in addition to achieving financial returns,” CEO John McMurdo told Stockhead.
He believes that the pandemic may even encourage people already taking an interest in how their super is invested to pay even more attention to whether it is being invested correctly and the extent of any impact.
This is also where environmental, social and governance (ESG) factors come into play in investing.
“Earlier this year we commissioned some bespoke research into Australians’ actions in response to the climate crisis to understand where ethical investing fits into the picture,” McMurdo said.
“The results show an overwhelming climate concern and that most Australians are taking actions to reduce their environmental impact but reveal that many remain unaware of the influence they have over where their money is invested.
“However, the results also point to Australians’ demand for more transparency about how their superannuation is invested and their belief that super funds have a duty to consider ethical and environmental factors when investing their money.”
McMurdo says Australian Ethical has seen strong member growth in this time and he noted ethical funds have done better than their peers.
He points to this as evidence people’s approach to superannuation investing and ethical investing is changing.
“Any doubt over whether ethical investing is a luxury that can only be afforded in a bull market has been forgotten following the sector’s strong performance compared with conventional funds, reinforcing our long-held belief that investing can deliver more than just strong financial returns,” McMurdo said.
“And while the pandemic is far from over, we hope ethical investing will become the new normal as Australians seek investments that offer a positive impact for them and the world around them.”
Russell Investments’ report suggested superannuation could become more personalised in the future rather than being a one-size-fits-all approach.
“Super funds are serving up one-size-fits-many approaches to investing that might look sensible on average, but in the real world, nobody is average,” Russell Investments’ Australian managing director Jodie Hampshire said.
Hampshire admits strategies such as age-only are a start. But she thinks the next challenge is for fund managers to allocate assets personalised to individuals’ goals.
Chartered Accountants Australia and New Zealand’s Negline said funds were trying to cater for differing people, but under the status quo the best hope for investors was to pick the fund that suited their needs best.
“Funds try and cater to different individuals — how you would approach retirement would be different to the way I would. Some like risk, others like return,” he told Stockhead.
“Funds try to operate like that [by] offering five to 20 investment options and you can choose based on how you pick the world.
“That gets you to a certain point, but let’s say for example you don’t like mining companies, you could ring up and say, ‘I don’t like them’, they could say, ‘thanks but we think they’re fine’.
“It’s up to you to decide whether or not you’re going to follow them.”