Bresnahan says super funds need to bring more pressure to bear on investment managers to lower fees, and take a stand against the level of salaries in the asset management industry. “The question is: are the levels of remuneration currently offered in the asset management industry fair and reasonable?” he says. “Does it take five times the resources to manage $5 billion from $1 billion? The whole concept of percentage-based charging needs to be reviewed; it’s not intrinsically linked with expenditure.” In late March, the Australian Shareholders Association released a new, tougher policy on executive remuneration after the market downturn highlighted the weak relationship between pay and performance.
Among the enhancements, the ASA will require that long-term incentives are not paid to executives unless they have met performance criteria over at least four consecutive years. The new policy should go some way to holding company executives to account, but super funds too can play a bigger role here by taking real action to address governance issues within the companies in which they invest. With so many fund managers struggling to stay afloat, it seems inevitable that salaries will have to come down, but it remains to be seen how much slack managers are willing to give when it comes to mandates.
After all, there are few super funds who are not already agitating for the best deal possible from the managers they enlist to invest their assets. And those that push too hard risk receiving a poorer level of service as a result. There are likewise potentially negative implications of a reduction in fees for member services. “You could find that people will provide statements less often, have a minimalist call centre, not do any development in areas like member education and limited advice,” Rice says. “Anything that’s not compulsory they’ll slash to get within the cost structure.”
Regardless of the perceived risks, it is vital that the industry heeds the Government’s call to action and finds a way to lower the average fee paid by members. A perception by members of static or rising fees coupled with falling super fund balances could fuel an exodus to the self-managed super fund (SMSF) market, further compounding the negative asset and member growth being experienced by funds.
With fees and statements assuming greater focus in this negative return environment, the SMSF industry poses a significant threat to the livelihood of mainstream superannuation funds. Research conducted earlier this year by research firm Investment Trends and endgame communications revealed four in 10 investors no longer trust fund managers and many plan to manage their own investments in future. Mark Johnston, principal at Investment Trends, says he expects a significant surge in SMSF establishment over the coming years, which would be consistent with the last bear market.