Key findings from an industry report highlighted the need for the introduction of a product rationalisation mechanism for superannuation, the chief of the Financial Services Council (FSC) said yesterday.
In response to the release of the latest FSC-Rice Warner Actuaries “Superannuation Fees” report, John Brogden called on the federal government to “progress the proposals” for a new mechanism as a matter of urgency.
“This report puts beyond doubt the need to introduce a product rationalisation mechanism for superannuation,” Brogden said.
“The government is standing in the way of members benefiting from fee reductions in contemporary products. We call on the government to progress these proposals as a matter of urgency.”
The report found superannuation fees, as a percentage of assets, decreased between 2010 and 2011, taking the overall expense rate back to 2008 levels.
The decrease means fees as a percentage of funds under management have moved back towards the trend experienced between 2002 and 2008.
Specifically, over the past decade, industry-wide average fees declined by 12 per cent from 137 basis points (bps) in 2002 to 120 bps in 2011, the report found.
Between 2010 and 2011, average fees fell by 5 per cent from 127 bps to 120 bps.
Commenting on the report’s findings, Rice Warner chief executive Michael Rice said: “We’re pleased the report is being released as there is a lot of misinformation about fee levels.
“There are different fee drivers – scale and technology are driving fees down. On the other hand, regulation is increasing costs.”
According to the report, a number of factors could be attributed to the fee decrease, including lower investment costs, which had resulted from greater investment in indexed assets and larger investment mandates.
Other factors included lower advice costs and a technical decrease due to increased average account balances, reflecting a modest recovery in investment markets since the global financial crisis (GFC) and growth in average balances within industry funds, it said.
It also found the industry segments that experienced the largest changes were personal super with a decrease of 20 bps, small corporate super master trusts with a fall of 16 bps and industry funds with a drop of 13 bps.
Fund consolidations had resulted in increased scale and lower fees across the industry, it said.
As well as revealing the factors that caused the fee decrease, the report also found “offsetting factors” that prevented fees from falling further.
The factors include a shift in investments to higher-cost asset classes, including direct investments in infrastructure, private equity, hedge funds and other international assets.
Other factors included a huge growth in member engagement services in all sectors, heavy investment in modern administration platforms and continued inefficiency in collecting and allocating contributions, largely due to the poor practices by employers in meeting their superannuation guarantee obligations, the report said.
In terms of fee changes since 2010, it found among the key contributors the continued decline of legacy products and the number of mergers between industry funds and some between retail corporate master trusts, resulting in greater economies of scale.
Other factors were continued outsourcing of super for larger companies and the winding up of smaller corporate funds, as well as greater awareness of advice fees coupled with poor investment performance during the GFC.
The report also listed the continued growth of the self-managed superannuation fund segment as a contributor.
