Let the games begin: fees become the weapon of choice in battle for funds

Fees have become the focal point of Australia’s migration to a new choice of fund regime.

And despite the best efforts of their detractors, Australia’s industry funds have been able to maintain the moral high ground on the fees issue — something that has been underscored by the release of a recent Citigroup analysis and research conducted by Chant West on behalf of the Investment and Financial Services Association (IFSA).

The Chant West research, while making clear that retail master trusts provide more options and higher levels of service in some areas, does little to undermine the perception that, generally speaking, industry funds operate in a lower fees environment.

Releasing the Chant West data in late June, the IFSA’s executive director, Richard Gilbert, said that while fees and charges were important factors, the new research pointed to the need to consider fund features and services when assessing the “value proposition” of any new fund consumers might be considering.

“Features, options and services that enhance a fund member’s experience and encourage engagement with their retirement savings mean that people are more likely to make active choices about their superannuation,” Gilbert said.

The industry funds responded almost immediately to IFSA’s release of the Chant West data with research conducted by Sydney-based firm SuperRatings, which it said showed that, on average, industry super funds could deliver significantly more retirement dollars to their members when compared to retail master trusts.

The SuperRatings data represented an update on that used by Industry Fund Services to back up its national advertising campaign ahead of the implementation of choice of fund in Australia.

That advertising campaign prompted an intervention by the Australian Securities and Investments Commission, resulting in amendments being made to accommodate the regulator’s concerns.

However, the bottom line message being sold by the industry superannuation funds is that, over time, their members stand to be better off than their counterparts in retail master trusts.

The chief executive of the Australian Retirement Fund (ARF) and Industry Super Funds spokesman, Ian Silk, described the data compiled by SuperRatings as “compelling”.

Little wonder then that IFSA, while conceding nothing on the question of fees and charges, chose to point to the Chant West findings with respect to features and services.

What was not mentioned by Gilbert or in the Chant West data was earlier research suggesting that despite the provision of investment choice in superannuation funds nearly five years ago, most Australian superannuation fund members were still inclined to stick to the default option.

Notwithstanding this failure by Australian fund members to exercise investment choice, the Chant West data said that the range of investment options was greatest for personal and corporate retail master trusts, with a median of 175 and 37 options respectively.

It said this compared with 12 options provided by industry funds, seven for public sector funds and five for in-house corporate funds.

“Retail master trusts provide a wide range of single manager options (both diversified and asset sector) while industry funds, in-house corporate funds and public sector funds provide very few single manager options,” the Chant West analysis said.

Looking at administration and service standards, the research said that the service standards for retail corporate master trusts were “better than the other funds across almost all the administration functions”.

“The standards for in-house corporate and public sector funds can vary considerable,” it said. “The industry fund service standard for switches is significantly longer than for retail master trusts, as most industry funds process switches only twice a month.”

With other research suggesting that insurance will be one of the key determinants for people considering switching superannuation funds, the Chant West data suggests that there is little separating the various funds where it really matters.

It said that almost all funds provide insurance for death and total and permanent disability, while all retail corporate and personal master trusts provide the option of death only cover, with most industry funds also providing the option of death only cover.

What was made clear by the Chant West research was that the poor relations in the superannuation features and services equation are the remaining corporate superannuation schemes that had clearly struggled to match the level of investment of the retail master trusts and industry funds.

This is hardly surprising in circumstances where, in size terms, most of the corporate superannuation funds have fewer members and fewer funds under management than either the master trusts or the industry funds.