It takes a lot to shock someone in the superannuation industry these days, but Jeremy Cooper did the trick with his address to the ASFA luncheon in Sydney last month.
The moment you could actually hear the jaws drop was when the ASIC deputy chairman, who’s now running Chris Bowen’s ‘super review’, lumped in those long-suffering funds managers with…real estate agents. And worse, investment bankers.
“These are just about the only professions that still charge a flat percentage fee. So as a funds manager’s assets go up, scale does not decrease the fees, they actually just keep going up…My bones tell me this is an issue.”
And Cooper made no bones about listing a few other shortcomings in the superannuation industry.
The “most egregious” fee-grab he’d seen was against hapless workers who’d landed in their employer’s default corporate master trust, had never received advice yet were still paying a commission on their compulsory contributions. So don’t expect that rort to continue.
Playing the ‘wide-eyed innocent’ for maximum effect, Cooper also wondered aloud why super funds had no equivalent of an AGM, whether the AIRC’s granting of exclusive default super fund status in awards had been a sufficiently transparent process, why trustees had let funds managers introduce performance fees with no reduction in the base fee, and why super fund members didn’t band together and form the equivalent of an Australian Shareholders Association.
(Given just about everybody over fifteen has some kind of super or pension account, I’d have said there was already a super member’s lobby group out there called ‘Parliament’, but I’m obviously mistaken.)
In proposing a solution to the ‘problem’ of percentage-based fees for funds managers, Cooper somewhat echoed Frontier’s Fiona Trafford- Walker in his proposal for a “fixed cost plus transparent margin” base fee, combined with a performance fee or penalty based on “a rolling five year comparison with an appropriate benchmark”.
Expect funds managers to take to the streets if this ‘flat fee’ idea starts to get legs.
In the hushed conversation after Cooper’s address, one local rep for a global funds manager complained that he already had trouble reserving capacity in new products – because HQ knew they could sell the product in Europe for a much higher fee than they could in Australia.
Another grumble regarding Cooper’s proposal was that it would wipe out competition, because an institution would be incentivised to give out a single $2 billion Australian equities mandate, say, paying only a $1 million ‘cost recovery’ base fee, rather than 10 mandates of $200 million each.
And that would throw a lot of funds managers out of work. At least Cooper gave them a couple of suggestions for alternate careers.