HEFTY SUPERANNUATION EXIT CHARGES

There could be more pain suffered by People who want to back out of poorly performing super funds.

Investors wanting to escape underperforming superannuation funds and managed investments are discovering the majority of them have high exit fees.

These charges are adding to the agony of the losses they have already suffered and has led to increased levels of complaint against the industry.

Mr Phillip Gray, the communications manager at the investment research company  Morningstar says, exit fees are not as high on average, as they were in the 1980’s and early 90’s when life insurance companies sold old-style investment policies that were set out to lock people in until old age.  But Mr Gray admitted some of the industry’s so-called “Legacy products” are still in force and some contemporary products also come with high exit fees.

Mr Gray says many superannuation, retirement income and investment products in the Morningstar database have no edit fees but there are a number with exit charges of 3 per cent, 4 per cent or 5 per cent.

On a $500,000 nest egg that’s a bill of $25,000 just to leave-enough to make you think twice, especially when balances have been drastically reduced.  “5% is high,” Mr Gray admitted.

“These charges often shock investors.  It is common practice now for planners to waive the upfront charges in return for a service fee or trail commission but not the exit.  The client is not expecting a fee when they exit.  If investors have accumulated a substantial sum in the fund the dollar value of a 5% exit fee could be high.”

In its product rating process Morningstar tends to mark down those funds that have entry, exit and annual fees.

“A fee structure of that type is no longer the industry standard but they are still around, Mr Gray says.

Ms Alison Maynard, who is in charge of the investment, life insurance and superannuation division of the Financial Ombudsman Service, says that complaints to her division rose sharply in the second half of last year (2008).  Of all categories dealt with in her division, disputes involving managed investments rose the most.

In the six months to the end of last year (2008) Ms Maynard’s group received 1059 written disputes, nearly twice the number it received in the six months to December 2007.

Of those, 370 dealt with financial planners (an increase of 114 per cent), 263 dealt with life insurance matters (up 31%), 188 were about managed investments (up 168% and 116 about stockbrokers (up 52%).

“Many of the disputes about managed investments were about costs and delay involved in redeeming funds,” she said.