Financial advisers are often asked by their clients what is the difference between a superannuation industry fund and a model portfolio. This article compares the two.
When a client meets with their financial adviser, the adviser may recommend investing in a model portfolio built by institutional investment managers. So how do model portfolios compare to industry superannuation funds?
Comparing these two categories of investment products is not like comparing apples with oranges, more like comparing apples and apple pies. Why? Consider the definitions of the two concepts:
There are a range of considerations for an investor when they think about the appropriate approach for their retirement savings. For example, the fund administration and set-up requirements associated with a SMSF can be more intensive when compared to a large superannuation fund offered by an industry fund or a superannuation fund on platform. This is something investors should review when selecting the superannuation structure for their retirement savings.
But what are the investment differences between an industry superannuation fund and a model portfolio? To answer this, we compare a model portfolio held within a superannuation fund via a platform and a typical single diversified industry fund MySuper option below.
|Model Portfolio held within a Superannuation Fund via a Platform||Industry Superannuation Fund MySuper Option|
|Access||A Model Portfolio can never be a “default” superannuation choice. Generally investors will invest in a model portfolio on the advice of their financial advisers . The financial adviser will recommend a model portfolio that is tailored to meet an investors financial needs and personal circumstances.||MySuper options can be accessed with or without a financial adviser. This is the default retirement saving option for investors who don't make an investment choice for their superannuation. In the instance where no financial advice has been provided, the investment will not be tailored to the unique circumstances of the investor.|
|Transparency||The investor has full transparency of the assets within the model portfolio. Therefore, the investor can see what assets they hold at any point in time. Assets can be ETFs, stocks, or managed funds.||These structures are less transparent as the investor may not be able to view the underlying investments. Investors should be able to see the number of units they hold, the broad asset allocation, and some of the largest individual holdings, but not necessarily all the assets within the investment option.|
|Investment Management||While the platforms have final responsibility for asset allocation, they normally rely on advice from an institutional investment manager. In other words, platforms offering superannuation can choose to partner with an institutional investment manager for the management of the model portfolio.||Investment management of a MySuper option is often the responsibility of an internal investment management team within the industry fund. Typically, the internal team is responsible for asset allocation, with management of many individual asset classes outsourced to institutional investment managers.|
|Asset Allocation||Multi-sector model portfolios can be actively or passively managed depending on the style of the investment manager. The financial adviser helps select the model portfolio with the asset allocation that best suits the investor. Investors can see asset allocations changes as they occur.||MySuper portfolios can be actively or passively managed depending on the style of the industry fund. MySuper investment options, whether life-stage or single portfolio, have a diversified asset allocation. The fund selects an asset allocation that they believe will be most appropriate for most investors.|
|Liquidity||Assets on platform are generally liquid, as there is an active market to trade the investment. Therefore model portfolios tend to be made up of liquid assets.||Many MySuper options offered by large industry funds include exposure to less liquid assets like unlisted property or infrastructure however, they are required by law to ensure they have adequate cashflow at all times.|
|Cost||Model portfolios offer cost effective investment management for superannuation and have the potential to improve tax out comes, especially, when using low-cost, tax-efficient ETFs. However, there are many costs beyond investment management and tax, so an investor should speak with their financial adviser to better understand all the costs.||MySuper Funds are designed to be simple and cost-effective investment options for investors.|
The choice of investment should reflect your financial needs. Ultimately, model portfolios support advisers by providing access to the teams that manage assets for some of the largest, most discerning investors in the world. Their resources and expertise can help investors build toward the future they envision — whether that means preparing for retirement, buying your first property, supporting kids or ageing parents, preparing a financial legacy or donating to cherished causes.
State Street Global Advisors defines a model portfolio as a collection of assets owned by the underlying investor and continually managed by professional investment managers. Model portfolios employ a diversified investment approach to target a particular balance of return and risk or portfolio objective.