Average superannuation fees in Australia have risen by 19 basis points per annum following the implementation of latest rules over how such costs are calculated.
In its September 2017 fees survey published yesterday, Chant West - an Australian research and performance measurement firm said the weighted average total fees for 92 MySuper products and the top 100 choice products - encompassing products with over A$1trn (£580bn) in assets - had risen from 0.95% to 1.14% since the introduction of RG 97.
RG 97 - Regulatory Guide 97 published by the Australian Securities and Investments Commission - came into force on 30 September and requires superannuation product providers and to provide more detailed data about fees and costs, including those from underlying investment vehicles.
These changes were designed to create a more level playing field, giving customers greater transparency and allowing meaningful comparisons between products.
Chant West said since the new rules came into force, average investment fees had risen from 0.61% to 0.80% per annum, while administration costs had remained stable at 0.34% per annum.
But it said these results made supers look more expensive - noting the industry now faced a "massive test" to convince members that the increases in publicly-disclosed fees were more perception than reality.
Chant West head of research Ian Fryer cautioned against jumping to the "obvious conclusions".
He said: "What we're seeing isn't a massive increase in fees. Rather, we're seeing an increase in the fees that the regulator, ASIC, now requires funds to disclose.
"From the members' point of view, the actual fees and costs they incur haven't changed in most cases. There have always been costs like brokerage, underlying manager fees and transaction costs that funds didn't report because they weren't required to. Now they are. That's a good thing in principle because it makes everything more transparent, but the danger is that people will take the higher published costs at face value."
He added: "Perception is important, and the last thing the industry wants is for members to get spooked into believing they've suddenly been hit with big fee increases. They have not! Now it is up to funds to assure their members that nothing of substance has really changed and, in particular, returns for members are unaffected by the new disclosure rules."
Solving the ‘Russian doll syndrome'
Fryer said the enhanced disclosure regime should, in theory, make it easier to compare one fund's fees with another - but warned the guidelines have been framed in a way to solve some problems but create others.
He said: "There are certainly some positives. One we would single out is the requirement to disclose the costs of interposed vehicles, such as the layers of fees you find in some fund-of-fund investments. We've referred to this issue over the years as the ‘Russian doll syndrome', where funds only disclosed the top layer of fees charged by the lead manager, but ignored the fees of the sub-funds they invested in.
"That's one of the good things to come out of RG 97 but there are a few not-so-good things as well. One is the way it has created a distortion in the treatment of fees and costs for property investments. Put simply, you have to disclose more fees and costs if you invest in unlisted property rather than listed REITs. That puts industry funds at a disadvantage because their property exposure is mainly through unlisted vehicles, so they will tend to look more expensive."
He said there were also structural issues - meaning super wrap products can disclose lower fees and costs than other superannuation products for the same investments.
Fryer explained: "That's because wraps, which are widely used by financial planners, invest through managed funds that don't need to disclose fees and costs in the same way as other superannuation products.
"This is currently being addressed by the industry and in late 2018 there should be a solution that will involve 10,000+ managed funds disclosing costs on both the managed fund basis and the superannuation basis. In the meantime, super wrap products will look cheaper than they really are compared with other super products."
Chant West said RG 97 had also introduced a lot more complexity and required funds to gather and report a number of costs they've never had to before
Fryer said: "There's a lot of extra work involved and inevitably that will add to costs, so transparency does come at a price."
Chant West said the guidelines around RG 97 are complicated and notes the industry has formed a working group to work on publishing comprehensive guidance on how to comply with the rules.
But, until then, Fryer says the result could be less comparability, not more.
He said: "It will take the next year or so for the industry to arrive at a consistent way to disclose fees and costs in line with RG 97. Until then, as researchers, we will continue to make adjustments to the published figures to allow fair comparisons."
Fryer concluded the real danger was "becoming obsessed with fees and losing sight of what is most important to members".
He concluded: "At the end of the day, the net return is what really matters. The industry needs to draw the focus back to member outcomes and cannot sacrifice performance just to bring the fees down - that would not be in the best interests of members."
Caroline Kurup explores the latest TPR guidance on superfund transfers and what scheme trustees should be considering
Pension scheme trustees and sponsors should only seek to transfer members’ benefits to a defined benefit (DB) consolidator if there is no “realistic prospect of buyout in the foreseeable future”, The Pensions Regulator (TPR) says.
Guy Opperman says two page, simpler statements as well as an annual ‘season’ in which to issue them could be transformative steps for the UK pensions industry
A second pensions bill is likely during the “life of this parliament”, according to pensions and financial inclusion minister Guy Opperman.
A “legitimate debate and discussion” is needed over future auto-enrolment (AE) contribution rates, says Guy Opperman, and that could take place next year.