Why I'm starting this blog

Right about now, there are a lot of mums and dads who quite possibly feel let down and ripped off by the superannuation machine.  The central reasons are many and if truth be told, I could go after any of them. In actual truth, I don't think that there's much that is wrong that is major, but I wouldn't be doing this blog, if I didn't think that it might help fix some of these bits that need fixing. And eventually, I might get round to looking into more of these issues.

I’m planning to start with asset allocations, in particular, the rather annoyingly-named 'balanced' option, but there's a whole bunch of other things that need to be looked at as well.

If you think during any of this that I'm making any financial (or other) recommendations, please consider yourself corrected.

So why pay any attention at all to the balanced option?

The term ‘balanced’ is, I think, one of the silliest in superannuation.  It’s routinely misused, like ‘mastertrust’, ‘growth’, ‘defensive’ and various other terms.  I’m choosing this because I think there are actually bigger fish to fry in the wonderful world of super at the moment, and because there are bigger fish, no one is looking at this issue.  

It’s my general feeling that the misuse of this word is causing some confusion amongst investors and investment professionals alike.  Mums and dads, who are the end users, have, I think, an expectation that super does something for them and I think that part of their expectations are influenced by terms like ‘balanced’.  And you know, their expectations could be quite reasonable.  But what if they’re not?  What if the term ‘balanced option’ really does lull punters into expectations that might be false.  Or disastrously wrong, even?

I'm not planning to look just at default or 'balanced' options, but I think it's a great place to start.  Someone from one fund once said to me that they have 95% of their members in their default option and I recall being quite alarmed at that.

My project over the next few weeks is to have a bit of a wander and see where exploring the idea of default asset allocation leads us.

It took me a little while, but I was eventually jolted into action by an article Sally Patten did for the Financial Review today, titled ‘Funds accept the reality of lower returns’.  For how long have I been aware that peoples' expectations of their super fund's asset allocation is a potential disaster?

Probably at least the past four or five years, now.  I remember seeing an investment option of a fund and snorting with derision at the asset allocation.  It would have been one of Australia’s larger industry funds, too.

Derision turned to that sick feeling you get sometimes when you realise something really nasty is going on and you can’t do anything about it.  When it became obvious that the term 'balanced' was being grossly misused, I got a bit annoyed.  I asked around various people I knew at various funds and got answers like:

‘It’s just a marketing term.’

‘It’s so investors know what our default option is.’

‘It aims to be balanced, but our investment guys will tilt the tactical asset allocation in favour of what they believe will perform most strongly.’

The last one, by the way, appears to be a filthy rotten lie: I very much doubt that the tactical asset allocation at this particular fund would have tilted so far off what we might traditionally regard as a 'balanced' axis.  And stayed that way for well over four or five years, pre-dating the global financial crisis in the process.

But was it being 'grossly misused'?  Is it being misused?  I had one idea of what it meant, once upon a time, and I have to be honest, I now have no idea what it means.

There is no questioning going out in the world of mum and dad punter, I think.  They see the term ‘balanced’ and they think a particular thing with regard to how their super assets are invested.  I could be wrong, but I think I'm right.

The coup de grace is administered by the graph used at the end of the article.  The article is subtitled, 'Performance of superannuation growth funds' but the irony is that, where we once drew a clear line between the terms 'growth' and 'balanced' as descriptors, 37 of the 62 funds listed use 'balanced' (or 'moderate', which is nearly as bad) in their titles.

Would punters expect that a fund labelled 'balanced' would be categorised as 'growth'?  And what do these terms mean?  Should they mean anything?  Is a fund obliged to follow what we traditionally regard as a 'balanced' allocation for their default options?

Over the next few weeks, I aim to do a bit of a look at this word and trying to piece together where it all went wrong.  Or did it actually go wrong?  Is there anything actually wrong?  I plan to look at it in many contexts, how it’s used by its many users.

Stick with me folks.  I aim to make this as interesting a ride as possible.  And do feel free to make comments or ask questions - if I'm on the wrong track or I just stuff up, I'd really love to know.  Plus I use jargon lots.

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