Will super funds move to asset-based fees?
Superannuation funds may need to place less reliance on dollar-based member fees and increasingly consider asset-based administration fees to remain sustainable, according to specialist superannuation research and ratings house, SuperRatings.
In an analysis issued this week, SuperRatings chief executive, Adam Gee, said the shift to asset-based fees would be forced by declining membership and rising operational costs.
However any shift to asset-based administration fees, particularly by industry superannuation funds, would be at odds with industry fund criticism of financial planner remuneration based on asset-based fees.
The SuperRatings analysis has broadly argued against superannuation funds blindly following a low fee agenda, arguing that low fees have little correlation with fund performance or retirement outcomes.
It said that there needed to be recognition of the big picture backdrop to Australia's superannuation sector as being one of "increasing operating costs and declining fund membership, which means ongoing cost reductions are unsustainable."
"With membership reductions expected to continue, as members consolidate multiple accounts, and the impending increase in mandatory transfers of inactive accounts to the ATO, funds may need to re-examine their broader fee structures," Gee said. "There is currently a high reliance on dollar-based member fees. Faced with declining membership and rising operational costs, many funds may need to consider introducing or increasing asset-based administration fees to remain sustainable."
The SuperRatings analysis stated that, according to the firm's benchmarking, the main driver of fee reductions during the past year appeared to be the removal of many high cost ‘legacy' products from the system, as well as a deliberate fee based decision to opt for passive investment management.
"There is a place for passive investment, of course, such as across asset classes or sectors when funds believe they cannot add value or do not have the expertise available to them for active management," Gee said. "However, we believe the downside protection offered from active asset allocation, stock selection and currency management will benefit funds over the long term and can reduce risk in volatile markets."
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