Low super fund fees far from best

[Andrew from Vista Financial]

SuperRatings a research agency has completed its 12th year of superannuation industry benchmarking and the results continue to show that fees are not the most important factor to make comparisons between funds. Our findings also provide some interesting discussion points, including:

 

1. Low fees have little correlation with fund performance or retirement outcomes.

 

2. Despite a drop in fees across the industry, particularly through MySuper, this has not provided any materially better outcomes for fund members.

 

3. Fee structures may continue to move away from fixed dollar amounts to asset based fees.

 

4. There is a danger of a "race to the bottom" when it comes to fees.

 

SuperRatings has recently completed a review of all major superannuation funds that have a 10 year performance history. For each of these 162 funds, a net benefit calculation has been applied, leading to some surprising results.

During the ten year assessment period, fees have at times almost had an inverse relationship to retirement outcomes, reinforcing the analysis that lower fees do not necessarily mean a higher fund balance.

 

To demonstrate this, SuperRatings has compared the three funds with the lowest fees with the three best performing funds on a “net benefit” basis (investment returns less all implicit fees and taxes).

The funds that charged the lowest fees generally showed underperformance in relation to their investment earnings. For example, Fund A, in the table above, which charged the lowest fees during the ten year period, produced investment earnings ranked only 96th out of the total 162 funds.

 

The combination of Fund A’s low fees and investment earnings only ranked 41st on a net benefit basis.

 

However, when we looked at those funds that produced the highest net benefit for their members, these funds did not have the cheapest fees. For example, Fund F which had the 2nd highest net benefit was ranked 78th on the low fee scale, just below the industry median for fees.

 

Fees versus net benefit

 

The following table demonstrates, in more detail, that low fees do not produce a better outcome.

 

[TABLE]

[TR]

[TD]Fund

[/TD]

[TD]Fees

[/TD]

[TD]Fee Ranking

[/TD]

[TD]Earnings

[/TD]

[TD]Earnings Ranking

[/TD]

[TD]Net Benefit

[/TD]

[TD]Net Benefit Ranking

[/TD]

[/TR]

[TR]

[TD]A

[/TD]

[TD]$3,898

[/TD]

[TD]1

[/TD]

[TD]$67,148

[/TD]

[TD]96

[/TD]

[TD]$63,250

[/TD]

[TD]41

[/TD]

[/TR]

[TR]

[TD]B

[/TD]

[TD]$5,162

[/TD]

[TD]2

[/TD]

[TD]$68,436

[/TD]

[TD]83

[/TD]

[TD]$63,274

[/TD]

[TD]39

[/TD]

[/TR]

[TR]

[TD]C

[/TD]

[TD]$5,256

[/TD]

[TD]3

[/TD]

[TD]$65,038

[/TD]

[TD]103

[/TD]

[TD]$59,782

[/TD]

[TD]74

[/TD]

[/TR]

[TR]

[TD]D

[/TD]

[TD]$6,699

[/TD]

[TD]16

[/TD]

[TD]$79,008

[/TD]

[TD]10

[/TD]

[TD]$72,309

[/TD]

[TD]3

[/TD]

[/TR]

[TR]

[TD]E

[/TD]

[TD]$7,528

[/TD]

[TD]36

[/TD]

[TD]$87,126

[/TD]

[TD]2

[/TD]

[TD]$79,598

[/TD]

[TD]1

[/TD]

[/TR]

[TR]

[TD]F

[/TD]

[TD]$10,549

[/TD]

[TD]78

[/TD]

[TD]$84,525

[/TD]

[TD]7

[/TD]

[TD]$73,976

[/TD]

[TD]2

[/TD]

[/TR]

[TR]

[TD]Total

[/TD]

[TD]

[/TD]

[TD]162

[/TD]

[TD]

[/TD]

[TD]162

[/TD]

[TD]

[/TD]

[TD]162

[/TD]

[/TR]

[/TABLE]

(“Fees” and “Earnings” are the aggregate amounts over the 10 year period)

 

The full report can be found here: http://www.professionalplanner.com.au/wp-content/uploads/2015/04/Low-Super-Fees-far-from-best.pdf