POWERED BY MOMENTUM MEDIA
ERFs not up to scratch
Australia’s eligible rollover funds (ERFs) continue to suffer from considerable shortcomings, according to research undertaken by Melbourne-based consultancy Heron Partnership.
The research, covering all 15 ERFs operating in Australia, not only concluded that there were too many such entities operating in the market, but that this led to the overcharging of some members because the ERFs were not achieving economies of scale.
The managing director of The Heron Partnership, , said in his view fees should not exceed about 2 per cent of assets, which was comparable to a retail fund with active managers and investment choice.
However, he said the average fee charged by ERFs was 3.57 per cent.
“For an ERF to charge above 2 per cent of assets is, in our view, excessive,” he said.
“The average balance in ERFs is about $1,100. For a balance of this amount, the average fee charged is 3.57 per cent, with 12 of the 15 ERFs charging total fees in excess of 2 per cent of assets,” Butler said. “For a $10,000 balance, the average fee is 2.51 per cent, and the number of ERFs charging over 2 per cent drops to nine.”
He said The Heron Partnership believed that a contraction in the number of ERFs would result in reduced fees.
“There is a strong correlation between fees charged and number of members,” he said. “The economies of scale certainly deliver lower costs without necessarily sacrificing investment aggression or services to members.”
Butler pointed to the structure of the ERF sector as being a problem in circumstances where the largest three funds accounted for 73 per cent of total combined ERF assets of around $5.4 billion.
“The largest ERF has assets of about $1.5 billion, whilst the smallest has $1.36 million,” he said.
Butler said the selection and appointment of an ERF was undertaken by superannuation trustees on behalf of fund members — something that placed a particular onus on trustees.
“As we see it, the onus is with the trustees of the ‘feeder’ funds to ensure they make a careful selection of the most appropriate ERF, and then to monitor it on a regular basis to check the adequacy of its performance, as it should for all of its outsourced service providers,” he said.
Butler said in these circumstances it was important for trustees to find a match with an ERF’s investment philosophies.
“We found there are four general classifications for investments — growth, balanced, conservative and cash — so each trustee can easily find the one that best matches their own philosophies for their lost members,” he said.
AUTHOR
Mike Taylor
Recommended for you
The super fund has significantly grown its membership following the inclusion of Zurich’s OneCare Super policyholders.
Super balances have continued to rise in August, with research showing Australian funds have maintained strong momentum, delivering steady gains for members.
Australian Retirement Trust and State Street Investment Management have entered a partnership to deliver global investment insights and practice strategies to Australian advisers.
CPA Australia is pressing the federal government to impose stricter rules on the naming and marketing of managed investment and superannuation products that claim to be “sustainable”, “ethical”, or “responsible”, warning that vague or untested claims are leaving investors exposed.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
76.97 3 y p.a(%)
2
Global X 21Shares Bitcoin ETF
76.46 3 y p.a(%)
3
UBS Solactive Global Pure Gold Miners UCITS ETF Dis USD
51.13 3 y p.a(%)
4
Global X GlobalX FANG+ ETF
45.15 3 y p.a(%)
5
Select Baker steel Gold Institutional
43.78 3 y p.a(%)
