Competition hots up in super space

Competition among fund managers is hotting up, with more than $54 billion in annual contributions up for grabs, according to Australian Prudential Regulation Authority figures. With consumers likely to be the big winners, one fund manager has dropped management fees on public offer funds by a massive 52 per cent while removing all entry and exit fees.

The changes are in part due to increased disclosure combined with employee superannuation choice — with the legislation passed as predicted.

Growplus Super chief executive Tony Goodman says under the new scheme its fees of 21 cents per week may need some modification.

“Most of our members find conventional forms of disclosure confusing, so we have adopted the ‘cents per week’ method. Nonetheless, we will follow the new requirements and show the total fees over 10 years. At this stage, it looks like being close to $20,000 on an average account balance over that period, which equates to just 0.38c per minute,” Goodman says.

He says the low fees are augmented by excellent returns over the past few years.

“We have always offered outstanding value for money for our members as proven through the returns of our funds over the past few weeks. In week 23, we reported a staggering 2 per cent, which when annualised equates to something approaching 58 per cent.

“We’ve decided against mainstream fund managers, preferring the more nimble, private equity investments. It is indeed fortunate that our trustees are closely associated with these ‘managers’ and therefore, can keep an eye on things,” Goodman says.

The launch of a new ‘wholesale’ superannuation fund by one fund manager in response to another fund manager launching a new scaled down version of its highly successful platform is likely to be the first of many as fund managers respond to increasing competition from a number of sources.

Those in the firing line include self-managed superannuation funds (SMSFs) and ‘industry’ superannuation funds.

Both types have seen increased popularity over recent years as investors, frustrated by poor returns and high costs, have turned to alternatives to boost their retirement nest eggs. SMSFs now account for more than 260,000 superannuation funds with 2,000 being registered each month.

They generally have fixed management fees charged by accountants and advisers which vary depending on the complexity of the fund. Base costs typically range from $1,500 to $3,000 per annum. Self-managed super funds have also proven popular for investors wishing to become involved in the investment decisions of their superannuation funds.

Retiree Shioban Everett says since she started her SMSF in March last year, the returns have left conventional fund managers “for dead”.

“I make a point of reading all the business pages at least once a month and work closely with my adviser. It works, because we both learned our craft ‘from the street’, me in clothing for the past 40 years and Ted as an electronics technician and more recently a property developer and super fund consultant. His expertise in picking investments has seen me make 30 per cent in 12 months and in three years when I sell, I’ll be worth close to $1 million,” Everett says.

She says her success has led to many of her former work-mates taking up the self-managed option with their retirement savings, although not all have opted for property.

“Some of my friends have decided to use shares and while their portfolios have only returned about 22 per cent since July last year, the software they have tells them when to buy and sell. It couldn’t be easier and they can’t see why they should pay someone else to follow a computer program. I am saving and making a fortune compared to a managed fund,” she says.

The drive to lower fees has been led by one manager that will be offering superannuation funds and allocated pension funds with an average cost of 0.6 per cent per annum for initial investments of $20,000 or more from July 12 with no entry or exit fees.

The new product strips out all brokerage or commissions. Advisers and clients can mutually agree to add on fees either at a fixed dollar rate or a percentage of the fund’s assets, both paid by the fund to the adviser directly.

A spokesman says feedback from accountants suggested some would consider recommending the product in lieu of an SMSF although this was not why the product was developed.

Nonetheless, accountants contacted said the new offering while cheaper, might not be enough to lure investors away from self-managed funds.

Adelaide accountant Sven Taylor, who audits a large number of SMSFs, says that pricing is not everything.

“In my experience, many clients appreciate that to get things spot on, you will need to have a range of tools at your disposal. Investment companies, discretionary family trusts and superannuation funds are all tools we utilise to keep the amount paid to the Tax Office down. Economies of scale apply here as well and it just seems to make a lot more sense that you park all of your vehicles under the one roof,” Taylor says.

As part of the package, a new education program will be developed for members of superannuation funds allowing them to make informed choices about where their retirement funds should be placed.

Nick Bruining is a Western Australian financial planner and Money Management’s Financial Planner of the Year.

The companies and persons in this article are fictional and only created to illustrate the argument.