Superannuation fees are expected to fall again this year, nearing one per cent, as the final transfer of accrued default amounts (ADAs) from legacy products will shift another $15 billion of assets from high fees, according to Rice Warner.
An analysis by the research house said while fees were falling steadily in percentage terms, they were growing in dollars. This was a result of growth in member services such as intra-fund advice, life insurance, and support for a growing number of retirees with higher service requirements.
Rice Warner also noted that the impact of regulatory guide 97 (RG 97) – disclosing fees and costs in product disclosure statements and periodic statements – would act to dampen the rate of reduction in headline fees.
“This is likely to impose additional complexities for investment products with multiple underlying investment vehicles, which ASIC [Australian Securities and Investments Commission] now terms interposed vehicles. All layers of fees related to the investment structure which reduce the overall investment return will need to be disclosed,” the analysis said.
“We expect that a result of this will be the increase in measurable fee levels across the industry. However, it is important to distinguish this type of fee increase – a technical increase – from an actual change in fee levels.”
Since 30 June 2016, fees stood at 1.03 per cent and Rice Warner said there was more scope for funds to continue to provide better value for members.
“Superannuation fees are fast converging on the headline target of one per cent of FUM [funds under management] per annum. Will this be enough? Probably not given the UK has now capped fees on default products at 75 basis points (0.75 per cent),” Rice Warner said.
“…we expect that there will be further reductions in fees as the industry continues to consolidate, as duplicate accounts are eliminated and technology and scale give funds the capacity to deliver services to members more efficiently. The sleeper is the growth of expensive choice funds sold on emotion not value.
Fees vs Superannuation FUM 2004 – 2016