Fund manager fees ‘licence to print to money’

Fund managers are going to be facing downward pressure on the fees they charge superannuation funds, following new research suggesting super fund members are failing to get good value from existing arrangements.

The research, undertaken by Rice Warner Actuaries and released at an Australian Institute of Superannuation Trustees (AIST) conference on the Gold Coast has recommended that superannuation funds use their bargaining muscle to move away from the existing asset-based regime, which generates fees regardless of performance.

The research was released by AIST chief executive, Fiona Reynolds but not before a question and answer session at the conference saw the chief executive of Alliance Bernstein, Michael Bargholz defend the existing arrangements as “suitable for consenting adults”.

Reynolds said the industry needed a fee model that “does more than reward fund managers for managing an ever-expanding pool of assets, even when they have not contributed to that growth.”

She said that in circumstances where Australia boasted a compulsory system of superannuation, the existing funds management fee arrangements were a virtual “licence to print money”.

“The key issue is net returns to members,” Reynolds said, “Clearly, it’s a better outcome for members if they can pay fund managers less but still get the same return for the same risk profile.”

“If we are serious about reducing costs across the super sector, we can’t ignore investment fees,” she said. “Whilst we recognise that we still need to pay for talented and skilful fund managers, our key role is to act in the best interest of members. This in not about being cheap and nasty, it’s about paying fund managers for the value they deliver.”

The Rice Warner study, which primarily focused on listed Australian equities, recommended that super funds move to a fixed dollar fee plus risk-adjusted performance fee model when negotiating fees with active managers of listed equities.

The study recommended a flat fixed dollar fee structure for management of index portfolios.