Super funds' perpetual push for low fees has overwhelmingly influenced the Financial System Inquiry's recommendations for the industry, which instead should have been focused on be tackling underperformance.
Such is the view of Blue Sky Funds' private equity director, Alex McNab, who said the last three years have been pervaded by a low fee competitive environment, largely driven by industry super funds.
He said the low fee mentality often comes at the cost of performance.
"It seems big super funds in Australia prefer to underperform as long as their MER is low, as opposed to paying a higher fee and making money," he said.
"While fees are an important contributor to overall portfolio returns (which should be the objective for most investors, after all), low fees are just one element in the long-term performance of a super account."
He said while most of the portfolio should look at low fee options, a smaller part should be geared towards alpha and higher fees in order to maximise returns.
"The industry needs to stop seeing fees as the be all and end all," he said.
"By focusing on overall fees, investors risk paying too much for some exposures (beta), not enough for others (alpha) and not allocating enough to the asset classes that can deliver real outperformance.
"This seems like a pathway to mediocrity."
The research house has offered a silver lining after super fund returns saw the end of a five-month streak last month.
A survey of almost 6,000 fund members has identified weakening retirement confidence, particularly among those under 55 years of age, signalling an opportunity for super funds to better engage with members on their retirement journey.
The funds have confirmed the signing of a successor fund transfer deed, moving closer to creating a new $29 billion entity.
A number of measures, including super on Paid Parental Leave, funding to recover unpaid super, and frameworks to encourage investment in the energy transition, have been welcomed by the superannuation industry.
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