Speaking to InvestorDaily, principal of market strategy and communications at Vanguard Australia Robin Bowerman said while increasing the amount of indexing in a portfolio can be one way to lower fees, the industry also needs to look at reducing the costs of actively managing a fund.
“You certainly want to see low-cost indexing but you also want to see low-cost active funds,” said Mr Bowerman.
“We don’t believe it should be an index or active debate, it’s about how do you blend the two things together to get the right outcome for the portfolio,” he said.
Mr Bowerman said lowering the fees for both active and passive funds will be a “critical driver for investment success” for super fund members.
“What we don’t see in Australia is a lot of low cost active management as yet,” he said.
The lack of competition between Australian super funds in regards to fees Mr Bowerman believes is one of the reasons for this.
He said while there is competition between different super funds in terms of product features and different offerings, “you don’t see a lot of competition around fees”.
Mr Bowerman said it's partly behavioural given that fees don’t typically drive Australian super members to switch funds.
The structure of our superannuation system he said is also likely to be an influence.
Mr Bowerman said the 401K system in the US, unlike Australia’s superannuation system, is “very competitive on fees”, but is also structurally very different.
“In the US system employers are very involved in selecting who managers the 401K,” he said.
“The [employer] sets up the 401K plan and they negotiate fees.”
Mr Bowerman said this differs substantially from the “Australian fund choice model” and our award model but is “something for the Financial System Inquiry (FSI) to consider”.
“The Cooper Review obviously took a focus on this type of structure with the MySuper recommendations,” he said.
“The FSI report said it’s too early actually too early to tell whether MySuper will have meaningful impact on the transparency of fees – I mean you sort of hope it will but at the moment it’s hard to see anything happening on that MySuper front.”
Mr Bowerman said the FSI report was raising the right questions around whether super fund members are “getting the full benefits of scale”.
