VINCE SCULLY | from Life Sherpa
VINCE SCULLY | from Life Sherpa
Superannuation represents about a fifth of the net worth of Australian households. There’s over $2.2 trillion invested in super growing at $100 billion every quarter. Choosing the right superannuation fund is one of the most significant financial decisions you will ever have to make. The choices are mind-boggling. Joining me in this episode is Vince Scully from Life Sherpa.
“It's the curse of too much choice. It's like logging into Netflix, it takes you longer to choose which movie to watch than actually watching it. And that's where default and stapling came in. It's the play something for me netflix don't make me make a choice, but there are so many pluses to actually making a choice. But how do you make a choice if you don't have the knowledge?”
Life Sherpa® was founded by Vince Scully: a qualified accountant, financial planner and mortgage broker with more than 35 years of experience in banking, finance and financial planning. Throughout Vince’s career, he saw the way in which smart financial planning can transform people’s lives – and he firmly believed that it was a service that should be available to all. Through Life Sherpa®, he’s made this vision a reality, delivering world-class financial advice in a format that’s made for the modern world. Together with his team of Life Sherpas (all highly-experienced, accredited finance professionals), Vince is proud to have helped countless Australians achieve their goals – and the journey continues every day.
"Risk is generally code for volatility. That's something that will impact your way to actually generate in the returns. So the underlying assets would be expected to generate a higher return on average. Sometimes they won't, but on balance they will. And the longer you have them, the less variability you get. But for most people, risk isn't actually volatility. It's what's the risk of me achieving my goal? Will I or won't I have a retirement income that will last as long as I do."
TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE
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Shares for Beginners.
Vince Scully (5s):
It's staggering. Yeah,
Vince Scully (7s):
And you know, when you
We're in the bottom category.
Vince Scully (9s):
Yeah. But not just at the bottom in a category on our own. So we are the only member of these bottom category for a developed market. We're the 12th biggest economy in the world. Yep. We're the second biggest funds management industry in the world and we're forcing people to put 10% of their import, 10 and a half percent of their income into super. And we're the worst of disclosure.
Good day and welcome back to Shares for Beginners. I'm Phil Muscatello. Superannuation represents about a fifth of the net worth of Australian households. There's over 2.2 trillion dollars invested in super and that's growing at a hundred billion every quarter. Choosing the right superfund is one of the most significant financial decisions you'll ever have to make. The choices are mind boggling. So joining me to shine the spotlight on the super industry is Vince Scully from Life Sherpa. Hi Vince
Vince Scully (1m 2s):
Goodday. Phil. It's great to be here.
Phil (1m 4s):
Yeah, thanks for coming back. It's been a couple of years, I think, since you've been here. You were in the garden studio when Really? Yeah.
Vince Scully (1m 9s):
I can't believe it's that long ago.
Phil (1m 10s):
Maybe even three years. Anyway, Vince
Vince Scully (1m 13s):
Scully, it was a hot day. I can remember that.
Phil (1m 15s):
Yeah, yeah, that's right. Vince Scully is a qualified accountant, financial planner and mortgage broker with more than 35 years of experience in banking, finance, and financial planning. So Vince, how difficult is it to choose a Superfund?
Vince Scully (1m 29s):
Very inward. Which is interesting because you know, the government's effectively outsourced retirement planning to the population as a whole and sort of to and by inference to the industry. But it hasn't given the consumer the tools to actually choose. Yep. So, you know, go back pre 1993, 92, when compulsory super started, many of us yeah. Made up our own mind. We decided how much of our money to save for retirement. Some of us had employers that had lifetime pension plans
Phil (2m 3s):
And like the public
Vince Scully (2m 4s):
Service, like the public service of
Phil (2m 6s):
Vince Scully (2m 6s):
And then in 1993 we made the whole public their own little fund manager and forced them to save some of their income into this system. And yet we didn't as a society or as a country, give them the tools to choose it. Which is sort of the worst form of deregulation really. But here we are, you know, 30 years later, and as you said, there's 2.2 trillion dollars. We're now putting 10 and a half percent of our gross income into it. And for many people, certainly those who started in the workforce in the last 20 years, their super will husbanded properly provide a very good basis for a comfortable retirement.
Vince Scully (2m 53s):
So that's a good thing. I doubt you would find too many people could argue that that's a bad thing. But there are some serious problems with the system. And giving people a choice without giving them the tools to make the choice strikes me as a dumb idea.
Phil (3m 11s):
And it's interesting because we're always told that we're kind of the envy of the world in this space. That it's such a unique system that we have here.
Vince Scully (3m 18s):
Well it is. And we are either number two or number three in the size of our funds management industry, certainly per head It's a huge number. And the vast bulk of that money is in super. And it at least is providing a bit of a balance to the 90% of household assets that are in real estate. So yeah, not only do we have the biggest funds management industry or one of the biggest, we also have the second most wealthy households in the world. Almost all of which is dependent on the value of real estate. Yep. Which is the most expensive in the world, or among the most expensive in the world.
Phil (3m 55s):
So we're basing this interview on your article on the Life Sherpa website, how to choose the Right Superfund. And I just wanna get back to the basics here. Yeah. What's the difference between an industry fund and a retail fund? Because they're, they're the main two types of funds, aren't they?
Vince Scully (4m 9s):
Yeah. I mean this is a very unfortunate historical divide. APRA uses categories when it's analyzing and reporting funds.
Phil (4m 20s):
And that's the, that's the predential
Vince Scully (4m 22s):
Prudential Australian regulator Credential Regulator. Yeah.
Phil (4m 25s):
Vince Scully (4m 26s):
Oh, what's the second? A one of them's Australian. Australian Prudential Regulator
Phil (4m 30s):
Regulatory Authority. Authority. Yep.
Vince Scully (4m 32s):
They are the people responsible for regulating public office super funds. South means super funds are regulated by the tax office, interestingly enough. And they collect a whole bunch of statistics and they categorize funds as either industry, retail or corporate. But it's largely meaningless from a consumer perspective. And there's also a distinction between the adverts that you see for industry super funds, which are put out by a group called Industry Fund Services, I think it's called, which represents about 23 of the dozens of industry funds. So the ones that that have the industry fund label is a small subset of those that are categorized by a APRA as industry funds.
Vince Scully (5m 19s):
But it's not a particularly reliable indicator of performance. And we, we can talk about the impact of member ownership later on, but Yeah.
Phil (5m 28s):
Vince Scully (5m 29s):
That's part of it. Which is part of it, but it's not a reliable indicator. Yeah. So I would suggest to most people, they should just ignore it and look at the fund itself. That the label is largely academic and in some cases it might actually be bad for you to be in a fund that's particularly concentrated in your industry. So if you are a construction worker, being in a fund with thousands of other construction workers who are likely to get laid off at the same time as you are and invest in the industry you are working in, strikes me as a lack of diversification and something that might be better avoided.
Vince Scully (6m 15s):
On the other hand, some of these industry specific funds have insurance offerings that are particularly suited to those industries. So if you work at heights, you work underground, you are a commercial airline pilot. Yeah. Your industry funds as in the fund that is aimed at your industry as opposed to which one of the 23 funds could very well have an insurance offering that is tailored to your needs. But letting the insurance tail wag the investment dog is often a mistake. Sometimes it's a necessary evil, but for the general public it's probably a bad approach to take.
Vince Scully (6m 57s):
Similarly, why you should never let tax the tax tail wag the investment dog. We shouldn't let the insurance tail wag the investment dog either. So to answer your initial question, just ignore these labels. Look at the individual product cuz there's so much variation on all sides of that equation. And from an investment decision perspective, you can't lump all retail funds together or all corporate funds together or all industry funds together.
Phil (7m 26s):
Because that's a problem really though, is it becomes so confusing for regular investors that they just default to whatever their employer gives them as the the standard one. What are the, what are these default kind of
Vince Scully (7m 37s):
Yeah, no, that, that's an interesting one. Funds like that's an interesting one and a recent change has complicated that. So let's, let's unpick that for a moment. So when compulsory super started out, your employer had to choose a default fund. Hmm. And in many cases that default fund was dictated by your industrial award or your enterprise bargaining agreement. So many people in larger companies were directed by their industrial instrument towards a specific fund. So if you worked in retail, you were often directed towards rest.
Vince Scully (8m 20s):
The retail employees, superannuation trust, you were in healthcare, you were often directed towards Hesta, the healthy employees superannuation trust of Australia. And that's sort of where the industry description sort of comes from. Yeah. Over time people got more and more choice, but the employers still had to choose a fund. So if you didn't make a choice, you went into your default fund. More recently, the dynamics around default funds have been changed. So an employer are now must put the fund, the contributions into the fund to which you are stapled.
Vince Scully (9m 2s):
Which means that if you don't make a choice, you won't get end up with another fund. Yep. Which is great if you are running one of the big funds because most people start their working life in hospitality or retail or doing unskilled industrial work. So if you are in retail, you'll end up in rest. If you are in hospitality, you'll end up in house plus, if you are in industry, you'll often end up in Australian super and so that's where your money will go. And Australians are notoriously disengaged or lazy or confused and only 3% of us change funds every year.
Phil (9m 39s):
Disengaged or lazy or confused. Yes. In terms of super, not in general. Let's just clarify for listeners there.
Vince Scully (9m 43s):
And you know, this is sort of the curse of too much choice. Yeah. It's like logging into Netflix, it takes you longer to choose which movie to watch than actually watching it. And that's sort of where default and stapling came in. It's the play something for me netflix don't make me make a choice, but there are so many pluses to actually making a choice. But how do you make a choice if you don't have the knowledge?
Phil (10m 7s):
So it seems that a lot of people consider fees as one of the main things to look out for you looking for a low fee Yeah. Investment choice. But this is according to you, not the most important. Yeah.
Vince Scully (10m 18s):
I mean don't get me wrong, fees matter and they matter a lot, but as a filter they're not particularly useful. Yep. So one of the biggest innovations in disclosure was Apple launching their heat map. So every six months APRA publish a a summary of all of the public offer funds and look at fees and returns and a whole bunch of other metrics. And when you look at the, in fact all of those one, we analyze it every time it comes out, there is close to zero correlation between fees and net performance.
Vince Scully (11m 1s):
Mm. In fact, when you look at the numbers, there is a very slight correlation between higher fees and higher performance, but it's statistically insignificant so you can ignore it. And when you look at the top performing funds, so if you look at the top three funds for, or the top five funds for the three year periods either just finished or the one before that the number one performing fund was in the top quartile for fees, that is the highest quarter of all funds for fees. So on its own, it's not a meaningful measure. When you're comparing apples with apples, then clearly lower fees wins.
Vince Scully (11m 44s):
Yep. But choosing a fund based on fees is little better than throwing a data at the,
Phil (11m 52s):
So we can actually discount that out of
Vince Scully (11m 54s):
I wouldn't, I wouldn't discount it entirely, but it's not the first thing you should look at. They're number seven in my list of eight things you should consider clearly don't ignore them and all other things being equal, lower fees are better. Yep. But getting to the all other things are equal bit is actually the hardest part of this because lower fees could simply indicate they're invested in lower cost types of assets. Yep. So cash is cheaper to manage than emerging market equities, but it's not gonna perform as well. Hmm. Equities are probably cheaper to manage than bonds. Are they the right thing for you? Well actually, who knows And property is more expensive to manage than equities.
Vince Scully (12m 38s):
So what's the fee actually telling you? Is it that the fund managers fee gauging or is it that they're invested in more expensive things that might better suit your needs? So getting to a fund that meets your requirements is the first step. And then you can look at fees. And so when you look in the media to ask the very question you just posed, how should I choose a superfund? Almost everything you read, including Essex Money Smart, says you should look at past performance and fees. Yep. And on the other hand, if you look at any PDs or you read anything else on the ASIC website, it warns you that past performance is no indicator of future performance.
Vince Scully (13m 21s):
Yep. And that's clearly true when you look at the APRA report. So if you look at the top five funds for the most recent three years and the top five funds for the three years before that there's only one fund that's in both lists. So it's sort of the easy answer and feels, feels sort of right If you don't look any deeper because you would say, well, you know, if I'm looking at school exam results, the guy who got an A last year, you know, the guy who's got an A every year is more likely to get an A this year than the guy's got a D every year. Yep. Unfortunately it doesn't quite work that way when it comes to funds management.
Vince Scully (14m 0s):
Yep. And outperforming whatever that means is a very difficult to, to do consistently and sustainably. And it's even more difficult to identify in advance the biggest driver of returns is a thing that we in industry call asset allocation.
Phil (14m 24s):
Oh, I was gonna ask about that because, no, I was just going to say I, I know listeners get bored because I do go on about, about asset allocation quite a bit and how important it is and what the mix is and different ages and so forth. So yes please. Yeah. Asset allocation,
Vince Scully (14m 42s):
What is asset allocation? What is it? That's a really good question. And it's used to mean lots of different things
Phil (14m 49s):
And this, this, you can actually see when you log into your, your super account and you look at your balance. Yes. It's gonna be divided sort, sort of, kind of sort of divided into the asset classes.
Vince Scully (14m 58s):
Yeah. So asset allocation is a word that describes what you are invested in. So not which individual bond or individual share you are invested in, but the groups of things you are invested in. And at the highest level we generally divide the stuff that you can invest in into so-called growth assets and so-called defensive assets. And that's a broad distinction between the types of things that can grow faster than inflation. And inflation is among your biggest enemies looking at retirement cuz it's so far away.
Vince Scully (15m 38s):
And they're things like, I loosely call them bricks and businesses. So shares which are businesses and bricks, which is infrastructure and real estate. And those three categories of things can be loosely grouped as growth assets, things that are capable of returning greater than inflation over time. And that's the engine that drives your ultimate retirement income. Yep. The counter to that is so-called defensive assets, which are called defensive because they're designed to even out the lumps and bumps in your growth investment. And that's generally cash and bonds and they are there to provide ballast, they're the things that stop the ship bobbing around in the water too wild wildly.
Phil (16m 28s):
Although it hasn't worked that well over the last year,
Vince Scully (16m 30s):
The last year. That's certainly
Phil (16m 32s):
A story. But anyway, that's another story.
Vince Scully (16m 34s):
But within each of those categories, how you divide them up is almost as important.
Phil (16m 42s):
And I'll just interrupt you for a moment cuz I had a guest who said, you can either own it or loan it. Yeah. Which I think is a great way of it is describing the differences between those two. Yeah,
Vince Scully (16m 51s):
It's a good summary. I use the bricks and business businesses or bonds and cash. Yeah. But yeah, it's, you can own the asset or the company. Yep. Or the great companies of the world as JL Collins calls them. Or you can lend the money
Phil (17m 9s):
Two two governments or two
Vince Scully (17m 10s):
Phil (17m 10s):
Vince Scully (17m 13s):
And, but with even within the growth, not all growth assets are created equal. So if I look at shares, you know, I can look at big companies or small companies or medium companies, small companies should in theory deliver higher returns than big companies. I can look at companies that are in Australia, so domestic equities or I can look at ones that are listed offshore. So global equities. And I can look at ones that are invested in less developed markets, so-called emerging or frontier markets. And again, they should perform better, although they're riskier. They're riskier because you know, there's less regulation, they're smaller markets, you can't necessarily rely on the same level of disclosure.
Vince Scully (18m 2s):
But they're all factors that go into your asset allocation. And similarly, when it comes to bonds, you know, I can have high investment grade or low investment grades, I can have short-term bonds or long-term bonds, they will all behave differently. And working out those allocations determines your expected return and it determines the variability in that returns that you can't have higher returns without accepting lower certainty of outcome. So for long term investments, so if you are a 20 something, you would want to have all other things being equal, more stuff invested in growth assets that comes with it, greater variability in the outcome.
Vince Scully (18m 52s):
So when I look at so-called risk, and when you look at a PDs, risk is generally code for volatility. That's something that will impact your way to actually generate in the returns. So the underlying assets would be expected to generate a higher return on average. Sometimes they won't, but on balance they will. And the longer you have them, the less variability you get. But for most people, risk isn't actually volatility. It's what's the risk of me achieving my goal? Will I or won't I have a retirement income that will last as long as I do.
Vince Scully (19m 32s):
Yep. And give me the standard of living, I expect, and there are three levers you can pull to get there, which is really time. So the later you retire, the more certain you're gonna be of getting it. The amount of money you invest. And obviously there's a trade off between spending now and putting more away and the risk you are prepared to take
Phil (20m 0s):
And to live through a global
Vince Scully (20m 2s):
Financial and to live through global financial crisis. Then a covid and a sars.
Phil (20m 6s):
Vince Scully (20m 7s):
Yeah. If, if I go back in, in my investing history,
Phil (20m 12s):
The Wall Street crash, no, not the wall doesn't care.
Vince Scully (20m 14s):
No, not the Wall Street crash. The oil crisis is my first, first memory. They come and go as as, as my, my good friend Nick Murray says, the declines are temporary, the advances is inevitable. When you summarize all of that, you say the two biggest drivers of your returns is your asset allocation and your behavior. Because choosing a higher asset allocation than you are prepared to tolerate where you react adverse, adversely. Adversely. So the number of people who in the GFC went to cash or in the covid march decline, move their super from high growth to trying
Phil (20m 53s):
Vince Scully (20m 54s):
The market, trying to time the match. And what they've done is lock in downs. So you need to have the right asset allocation to give you the outcome you need based on the amount of money you are prepared to put aside and how late you are prepared to retire and is consistent with the behavior that you will exhibit when things go down and things will go down. Most years you can expect to see a 10% decline. Hmm. In many years you're gonna see a 20% decline. Hmm. In some years you'll see a 50% decline. So knowing your behavior
Phil (21m 33s):
When these inevitably
Vince Scully (21m 34s):
Happen, happen is key to it. So whilst a hundred percent growth allocation would be expected to outperform, most people who choose it don't actually realize the excess return because their behavior gets in their way.
Phil (21m 57s):
So in super speak, in super world, when you go in and sign up and you work out what your asset allocation is, the terminology they use is things like balanced or conservative balanced. Yes. And this is really a reflection of asset allocation, isn't it? It is. And aggressive is aggressive the
Vince Scully (22m 15s):
Other term. Yep. I must admit that's a term I really hate. And very few investors will actually describe themselves as aggressive.
Phil (22m 20s):
Yes, I know. But this is, this is the key to asset allocation, isn't it really? It is. When you're ticking that box and even a young person who's in their twenties might go, I'm a conservative person, I don't wanna lose money, I'll be in the conservative.
Vince Scully (22m 32s):
That's right. And our natural, natural behavior as humans, actually this is my retirement savings, I have to be really careful with them, therefore I should invest conservatively. Yeah,
Phil (22m 41s):
That's, but it means something completely different.
Vince Scully (22m 43s):
Absolute worst thing that you could do. So by taking no risk, investing in no investment risk and investing in cash, like putting the money in the bank. Yeah. What you're actually doing is you are guaranteeing that you're gonna fail to provide enough for your retirement. So in some ways that's the riskiest option. Yeah. The outcome is certain, but it's a certain that you're gonna fail to achieve your goal. Yeah. So back to your point about choosing a fund, those labels have sort of become meaningless. When I started in this game, balanced meant 60 40 or 50 50. Today they've been
Phil (23m 22s):
Owning it and then loaning it.
Vince Scully (23m 22s):
Yeah. Yeah. So a traditional balanced fund meant something that was roughly balanced between owning it and loaning it or growth and, and and defensive. That may or may may not make sense today, but balance has become to mean generally somewhere in the 70 growth, 30 defensive to 80 growth. So don't look at the label, look at the asset allocation, the labels are so confusing. I could give you a, a range of balanced funds that could be anywhere from 60 40 to 90 10 hugely different beasts all with the same balanced label.
Vince Scully (24m 4s):
So you need to look below that into the actual asset allocation. Which brings us onto the next problem is
Phil (24m 15s):
Transparency is what
Vince Scully (24m 16s):
We're talking transparency. So when someone tells you that this is a 90 10 fund, it might or might not be for two reasons. One, usually these are targets. So when you look at funding, I might just pull up some notes here if that's okay. Okay.
Phil (24m 35s):
Just while you're pulling up the notes, I just wanted to say that, and this, this is a quote from the article, morning star reports that Australia ranks at the bottom of 26 global markets for investment portfolio disclosure, which I think is just astonishing.
Vince Scully (24m 51s):
It's staggering. Absolutely
Phil (24m 53s):
Vince Scully (24m 54s):
And you know, when you
Phil (24m 54s):
We're in the bottom category.
Vince Scully (24m 56s):
Yeah. But not just at the bottom in a category on our own. So we are the only member of these bottom category for a developed market. We're the 12th biggest economy in the world. Yep. We are the second biggest funds management industry in the world and we're forcing people to put 10% of their inco, 10 and a half percent of their income into super. And we're the worst of disclosure. Yeah. But now thank you for that. I've now pulled that up. So for example, Australian super balanced, which is the default option. So if your employer has chosen Australian super as your default fund, this is the one you'll be in. Yeah.
Vince Scully (25m 36s):
And I'm not picking on Australian Super, it's just an example. Their target asset allocation is 78 growth, 22 defensive. That's
Phil (25m 45s):
Vince Scully (25m 46s):
That's a balanced option. The actual result at the 30th of June, 2022 was 73 27. But they have significantly wide discretion in what they can actually do with against that target. And if they were at the lowest or the lower end of the available range, they have that could be 30 growth, 70 defensive. Wow. High a hyper conservative portfolio. Yeah. Or at the highest growth it could be a hundred percent zero. Now they are the ranges and as you can see the actual's not that far from the target. Yeah. But it's clearly a more defensive spread which might indicate that they took a, you know, decided to take some risk off the table during Covid, but you could end up with a highly conservative portfolio.
Phil (26m 38s):
I think it's really good for listeners to understand these percentages though. Yeah. I think this is a great takeaway to know what, you know, 80%, 20% and so forth means in terms of just breaking down these into individual areas of investment and what they actually mean.
Vince Scully (26m 53s):
Yeah. Sam Cecilia, the CIO of Hostplus was in the press during the year saying we have 0% in bonds and he's running a fund that is got a target allocation of 76 growth, 24% defensive. You are not necessarily guaranteed to get what you think you are buying and they don't disclose how they're gonna decide where in that range they're gonna go. There is a place for what's called dynamic asset allocation. I'm not a fan because it smacks the market timing, but there is a place for it.
Phil (27m 26s):
Presumably there's gonna be funds within that who will be doing the market timing on your behalf anyway.
Vince Scully (27m 31s):
Sure, yeah. But what I wanna know is what am I actually buying? And the short answer is I don't know. So if a member of Life Sherpa comes to me and says, I'm invested in the Australian super balanced fund, actually working out what they're really invested in is a really hard job. And it's partly why advice costs so much. If you've worked out that I want to be in a seventy eight twenty two, which rounding call it 80 20, if you buy Australian super because their targets close to that, you've actually ended up with something that's closer to 70 30 and you could have ended up with something that was a hundred zero.
Vince Scully (28m 12s):
So, and you won't know until the end of the year. So that's a disclosure problem. So not only do you not know that what you're actually going to get in most cases, but the way people assign assets or investment thing things are invested in between growth and defensive does vary a little bit. The rules around this are a bit wooly. So some people would treat infrastructure for example, which is more stable than investing in banks or industrial companies because their revenues are a bit more stable.
Phil (28m 48s):
Vince Scully (28m 48s):
Airports. So roads, airports, power stations, pipelines, they tend to exhibit lower volatility or a lower beta as the mathematicians call it. They move around less than the market does. Yeah. And so they have some defensive characteristics. We would classify them still as growth assets because they are in the bricks category. Well they're sort of on the border between bricks and businesses. They, they have some characteristics that real estate exhibits because they have generally CPI related income or GDP related income, but they have growth potential. So some of that, depending on which funds you look at, some of that would be allocated to the defensive category and some might be in the growth category.
Vince Scully (29m 35s):
And APRA the regulator sets the rules and says, well if it's listed you must count it as a hundred percent growth. Whereas if it's unlisted you can allocate half of it to defensive.
Phil (29m 48s):
So, so that's interesting. You know, so like if it's, you know, a toll road that's a listed toll road company for example or
Vince Scully (29m 54s):
Phil (29m 55s):
Or or even as an example, Sydney Airports which was listed and then as now.
Vince Scully (29m 59s):
Exactly. So Sydney airport's a really good case and point because pre the takeover, which I'll talk about in a moment, before that UniSuper owned, think 19% of Sydney airport and when it was listed, that would've been in the growth category. Yep. Host plus owned Brisbane airport through its investment in the IFM infrastructure fund that was unlisted. So half of that would've been allocated to defensive. So when I look at the two investments, I go, I can have a listed liquid investment in the country's biggest airport with low CapEx requirements and relatively low growth built in.
Vince Scully (30m 46s):
Or I can have a higher risk investment in a secondary airport with massive CapEx and high growth built into the price.
Phil (30m 55s):
Gee, no wonder which of people's eye eyes glaze over when they look at their super and go, it's too hard.
Vince Scully (30m 60s):
It is. And that's why you, you need advice. So the day that this group of super funds bought all of the shares in Sydney airport and delisted it. So on that day, uni super's investment in Sydney airport in the signature of a pen became
Phil (31m 21s):
No difference in operational capabilities.
Vince Scully (31m 23s):
That's right. And in the middle of Covid suddenly became half a defensive asset. Now there are academic reasons why, to justify why that's the case. They're the rules. People are, I'm not suggesting as doing anything nefarious or illegal, they're just following the rules. Yeah. But the rules, whilst they have some academic bases, don't really help the consumer. And part of the argument as to why you mighty as defensive is because it's unlisted, it's less volatile. That is Sydney airport. The price changed every day as millions of shares changed hands and it reflected all the information. The value on Brisbane airport was determined by a group of analysts in a back room with a spreadsheet and was only corrected to market when an actual trade happened.
Phil (32m 8s):
And that's a big difference with unlisted, isn't it? It is. And it's a real problem with unlisted because you really don't know what you're getting. And that's right. There's a lack of liquidity. Yeah. Because you don't know what it's gonna be worth until it's actually
Vince Scully (32m 18s):
That's right. And
Phil (32m 20s):
Someone's paying for it.
Vince Scully (32m 20s):
And the upside though, so I don't wanna be negative on unlisted assets because an unli, all of the things being equal, an unlisted asset should give you a higher return than the same asset listed as long as you buy at the right price. And that's because investors are prepared to accept a lower return on a a list as in return for liquidity and transparency. So they're saying, I'm prepared to accept a lower return on this asset because I can see the price every day and I can get in and out whenever I want. But they want a, a risk premium for buying unlisted assets. They should give you high return in return for accepting lower volatility.
Vince Scully (33m 1s):
But the problem here is not the transaction itself, it's the instant reclassification of it. And the fact that we have no information to ascertain whether the price we're buying at it at or indeed selling it at, if you are starting to retire or moving funds, is what it's actually gonna be worth. And we've sort of seen the impact of this in the real estate market. So if you look at the movements in real estate listed real estate funds or REITs,
Phil (33m 31s):
Which is mainly industrial and commercial. Yeah. Or
Vince Scully (33m 34s):
Westfield rather than Westfield. Yeah,
Phil (33m 35s):
Yeah. Rather than residential. Yeah. It's
Vince Scully (33m 37s):
Not residential. No, generally not. That's moved down much further reflecting the fact that half the offices are empty and no one's going to retail anymore. Cause they're all shopping online. But the unlisted asset prices haven't moved down anywhere near as much. And so that would beg the question is, if I'm investing in funds with lots of assets, am I paying too much for this? And investing often comes down to the price you pay initially. I mean, what's, what does Warren Buffet say about margin of error and buying it? Yeah, yeah. At the right price. So
Phil (34m 11s):
That's, you're buying at the right price gives you the margin of error. Yeah. Yeah. Something to that effect. Yeah.
Vince Scully (34m 15s):
That's why I'm not as, not as good investor as wine, but that's the challenge for a consumer saying getting the higher returns that are available from unlisted assets could be a good thing. But how do I know I'm buying them at the right price? And how do I know that these analysts in the backroom are doing the right thing? I've supervised this task in, in over 20 years ago, I know where the skeletons are buried. And we used to have a, with, I'm not gonna name my former employer, but we used to have saying that if you torture the numbers for long enough, they will eventually confess. So
Phil (34m 56s):
Now we've confused everyone. We have completely confuse everyone. Where can people get advice from?
Vince Scully (35m 1s):
Yeah, I'm not saying, I mean obviously you might say, well he would say that wouldn't he? Because he runs an advice business. Yeah. But you know, given enough time, commitment, engagement, a consumer could do enough work to review the a hundred and odd options and, and reflect on their own needs and come to a conclusion. People could do that. And that's why I set out the eight step methodology in that article that you referred to. So if you, which
Phil (35m 36s):
Will we'll link
Vince Scully (35m 37s):
To there, the, so if you spend enough time, read enough PDSs and educate yourself enough, you could do that because life gets in the way. You know, we're busy people, we have kids, we take 'em to school, we, you know, we wanna enjoy ourselves, we want to,
Phil (35m 52s):
Life's too short for PDs.
Vince Scully (35m 54s):
Very short and PDSs are, they've all become very similar. Like the fee section is always section six. The investment section is usually section five. So they have a structure to them that makes them relatively easy to follow, but the sameness obscures the differences. And so you need to look for what's not said and what are the subtle differences between them because it's those subtleties that give you the insight and are you prepared to keep doing that. And the fact that only 3% of people change super funds every year, mostly because they move jobs, is a sign that it's actually a very hard job.
Vince Scully (36m 38s):
And that's why I created Life Sherpa to be able to deliver advice at a price that is affordable for the average Australian. So for $499, we will review your existing super fund and make a recommendation. And for many of our members, they will have their annual fees and get improved transparency and an asset asset allocation that matches their risk profile. And, you know, four $99 in the scheme of what will provide for potentially 40 years of your life strikes me as being a very modest sum, even if you only have 20, 30, 40, 50, a hundred thousand dollars in your fund.
Vince Scully (37m 25s):
Because if you are a 30 year old, this is probably your biggest asset if you haven't bought a home. But, and remember the one thing that I keep coming back to is that two thirds of the money you spend in retirement will come from the return on your money. So this is one of those decisions that you can make relatively quickly, has a very minor impact on your day-to-day budget, but will have a massive impact on future fill.
Phil (37m 56s):
Fantastic. So we're gonna put a a link in the show notes and the blog post to the article about super. If you want, people wanna go through and find out exactly what's going on. But Life Sherpa, how can people find out
Vince Scully (38m 7s):
More? We're at live sherpa.com au on on the web
Phil (38m 11s):
Facebook as well. I
Vince Scully (38m 12s):
Think we're on Facebook at, I think at my Live Sherpa on Facebook, but we're certainly there. We're on Instagram and I occasionally tweet and Phil's teaching me how to
Phil (38m 24s):
Be a Twitter user
Vince Scully (38m 25s):
To be a better tweeter. Yeah. So,
Phil (38m 29s):
Well Twitter's not very good for hollow self-promotion. It's more for shit posting and having fun. Oh,
Vince Scully (38m 34s):
We don't do hollow self-promotion as you know. But lifesherpa.com.au, you can start with a free 30 day trial and get to talk to one of our team.
Phil (38m 44s):
Vince Scully. Thanks very much for joining me today,
Vince Scully (38m 46s):
Phil Muscarello. Thank you very much for having me.
Any advice in this blog post is general financial advice only and does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs before acting on the information. If you do choose to buy a financial product read the PDS and TMD and obtain appropriate financial advice tailored to your needs. Finpods Pty Ltd & Philip Muscatello are authorised representatives of MoneySherpa Pty Ltd which holds financial services licence 451289. Here's a link to our Financial Services Guide.