In an article entitled Why standardised fee disclosure for MySuper accounts is lacking, Rice Warner said standardisation has led to distortions within the industry.
According to Rice Warner's consultant of market insights, Nathan Bonarius, there is “capacity for broad improvements in fee disclosure across the industry”.
Mr Bonarius identified multiple issues associated with fee disclosure for MySuper products.
“The disclosed investment fees do not have any reference to the underlying asset allocation of the MySuper option,” he said.
“Many funds have lifecycle products which reduce growth assets over the decades approaching retirement.
“Apart from reducing retirement outcomes for members, some of these funds also maintain fees at higher levels than is justified by the change in asset allocation,” he said.
Mr Bonarius also pointed out that the disclosure of indirect costs differs significantly between funds.
“The managed funds they invest in are not required to disclose indirect costs which makes obtaining information difficult, especially from overseas providers,” he said.
“Layering of costs can result in poor disclosure where the superannuation fund does not have a direct relationship with the final asset manager.”
Moreover, products that provide an interest rate, such as term deposits, are seen as having no explicit fee, Mr Bonarius said.
“Technically, this is correct as the fee is taken out of interest margins.”
“However, it does show cash to be the cheapest product even though it is generally the most inappropriate class for long-term investment,” he said.
Although ASIC is trying to improve the fee disclosure process by providing principle-based rules for disclosure, Mr Bonarius said more needs to be done.
There needs to be a “focus on principles rather than a set of prescriptive rules which distort the way funds disclose their fees in order to gain a competitive advantage”, he said.
