Ten Per Cent

It’s reporting season, that spring ritual where super funds all over Australia are sending out reports to their members telling them how much they have earned for the past 12 months.

For the first time since 2007, the numbers are up; that is, for the first time in almost three years the returns for the funds are in the black, allowing savers to bask in the warm glow of a positive return and allowing super funds everywhere to have a much easier time of communicating to their flock.

Good news is always much easier to spread.

Just how good the news is depends on performance; the critical after tax return that a fund manager can attach to the bottom of the sheet, or if the return is indeed spectacular, to the front cover of their annual report – which was the norm in the heady days of double digit performance.

Recently at CoreData Labs, the part of the CoreData research business which drags through the tailings of all the research that we are doing, we started to spend time examining the critical numbers of happiness and we discovered a very curious thing.

It appears that the psychology of consumers is anchored around the number 10. Any return less than 10% on a super member’s funds is bad and any return of greater than 10% is good.

In other words, satisfaction does not increase longitudinally with returns as the chart below indicates. The sweet spot of satisfaction occurs at about a 10% return on investment and once it reaches 20% flattens completely.

The numbers on the left of this chart show the relative levels of satisfaction of consumers and it’s easy to see here that at 10% (the numbers on the bottom of the chart) customers report that their satisfaction is relatively high.

While it’s true to say that the closer the performance gets to 20% the more perfectly satisfied they are, the variance is small enough to make the effort required to get that performance questionable.

It’s also worth noting the variance in performance between the consumers that have an adviser, used to have an adviser and have never had an adviser.

All the way through the performance curve, the satisfaction levels remain locked tightly together – too tightly for the differences of the sample of 3,241 Australians (about a thousand of each type) to be meaningful – until the performance numbers start to hit about 20%.

At that point the satisfaction of those with an adviser starts to flatten more quickly and to dip somewhat, while the satisfaction of those who have rejected advice continues to climb slightly, indicating that the satisfaction drivers for advice rejecters is more linked to return.

Just how this ends we don’t know. The survey peaked at a 20% return, but it might make an interesting project for CoreData Labs in future.