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Cost of competition
Chris Butler
While superannuation funds have increasingly been moving to become more competitive with the provision of improved services to members, some are also increasing their investment management fees, according to the managing director of research firm HeronPartnership, Chris Butler.
Releasing The Heron Partnership’s Quality Star Ratings survey for 2007-08, Butler said the superannuation market was particularly competitive, with consumers being the ultimate winners due to more and improved products.
However, he said there was sometimes a price to be paid for such improvements and that this was not always visible to superannuation fund members.
“On the other side of the ledger, many products have increased their investment management fees, which are not always completely visible to members, as fees are commonly deducted prior to the unit price being determined,” he said.
Butler said there had also been an overwhelming number of products that had introduced investment performance manager fees.
He said there were a number of fees and charges that impacted the operation of a superannuation fund including investment fees, administration costs, insurance premiums, contribution fees and adviser fees.
“These fees and charges can be structured quite differently from product to product and can vary materially from product to product,” Butler said.
He said Heron’s analysis of costs and charges, excluding insurance costs and any adviser fees an individual has agreed to pay their financial planner, showed material differences between some products.
Butler demonstrated how such costs and charges could impact the ultimate return received by someone who was a member of any one of the 33 retail superannuation funds that made it on to the list of those rated by Heron as being five star.
He said such an analysis revealed that a member of the lowest cost product — AGEST — could receive a retirement benefit some 15 per cent greater than the average retirement benefit produced by the other products.
Butler said it was important to remember that product enhancements had been delivered at a time when sponsors had been under enormous pressure to reconfigure systems so that they complied with the Government’s simpler superannuation initiative.
“Although not apparent yet, it is likely that the costs to comply, which have been significant for a number of service providers, may in some form be passed on to members,” he said.
AUTHOR
Mike Taylor
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