Unpaid, unsolicited Scott Pape endorsement triggers Hostplus bonanza

The Royal Commission has heard the unpaid, unsolicited endorsement of Scott Pape, the Barefoot Investor, has created a $2.5 billion boost for the funds under management held with industry super fund, Hostplus.

The revelation came during proceedings of Kenneth Hayne's royal commission, when HostPlus chief executive David Elia referred to the "Scott Pape" effect, which, he divulged, had resulted in a $2.5 billion funds under management influx.

"The fund has actually grown by $14 billion over the course of the last two years," Elai told the commission.

"The Scott Pape effect... that accounts for about $2.5 billion.

"So if you take out the Scott Pape effect in terms of funds under management, there’s about $11 and a half billion dollars of growth that’s largely attributable to – well, it’s attributable to a number of things, investment performance.

"Hostplus, for the year ending 30 June 2017, delivered a 25 rate of return – I think it was – we were the best performing fund of 13.2 per cent."

In his last book, Pape points out he shut down his SMSF to instead invest in "the lowest cost fund in the world", the Hostplus Indexed balanced Fund, which charges a management fee of 0.06 per cent to track the ASX200 combined with a similar, indexed approach to global stocks.

"This boring fund has beaten the pants off most stock-pickers", he wrote.

His Barefoot Investor book also revealed he also invests in ChoicePlus', a HostPlus funds that lets you pick the specific investments within your superannuation portfolio.

The commission also heard Elia's testimony on corporate hospitality spending.

Elia said it was a necessary evil and absolutely met the legal requirement for superannuation funds to act in the best interests of members.

Hostplus spends hundreds of thousands of dollars entertaining employers at the Australian Open each year, the commission heard.

The bill for the tennis last year came to $260,000, which equated to less than 1¢ per member per week, Mr Elia said.

Hostplus gets most of its new members because it is listed as the default fund in workplace deals. 

Counsel assisting the commission, Eloise Dias, said the regulator had raised concerns about Mr Elia's spending after a report from a whistleblower.

The royal commission is examining whether spending on advertising and sponsorship is in the best interests of members.

Hostplus fees are comparatively low, at $87 a year, or $1.50 week, but its members have low balances vulnerable to erosion by fees and insurance premiums.

A review by Rice Warner in 2017 found claims by Hostplus members aged under 25 are very low and as a cohort they are "over-insured", Ms Dias said. 

Pape recommended Hostplus twice in his recent 280 page The Barefoot Investor book pointing to his own membership.

He mentioned he and his wife used to have a self-managed super fund (SMSF)..."because that's what wealthy, sophisticated people do, right?"

One of the reasons he shut it down was that he wanted simplicity.

"I love investing. But Liz? Not so much.

"And given that she's younger than me, and fitter than me, the chances are she'll outlive me. And an SMSF would be a technical and administrative nightmare for her."

The other key reason for snapping his own fund was Paps reckoned he'd found the lowest cost fund in the world

"It's also been one of the top-performing funds over the years.

"It's the Hostplus Indexed Balanced Fund, and it charges a tiny investment management fee of 0.02 per cent.

"In other words, 2 cents for every $100 invested (plus a $78 a year admin fee).

"There's no minimum balance," Pape noted.

Pape made his views known under the headline: The SMSF Lite that I use

He noted he had SMSF Lite with Hostplus (because he was already invested in their ultra-cheap Index Balanced Fund for his super).

"They call it 'ChoicePlus'. and it allows you to invest in any of Australia's biggest 300 companies on the stock exchange, together with a range of term deposits and ETFs." 

ChoicePlus needs a minimum of $10000 to kick things off, and costs $180 a year, "versus thousands for a traditional SMSF from an accountan," Pape advised.

By combining ChoicePlus with the Indexed Balanced Fund, Paps suggested he got the best of both worlds: "the cheapest super fund in the country together with the opportunity to pick and choose my own shares!" 

Property Observer noted HostPlus was recently named as the top performing super fund over three, five, seven and fifteen years.