But reliable estimates could be calculated more easily to help funds overcome this problem. The biggest obstacle in the way of true cost comparisons, rather, is acceptance that fees reported to members would inevitably be higher. “If you think about it from a commercial perspective there are significant financial incentives to have a lower fee outcome to be more competitive and more profitable,” Elvish says. Industry funds, in particular, would loathe the loss of their apparent low-cost advantage over retail super providers. “There’s no incentive. That’s the problem,” Elvish says. The incentives are probably skewed in the other direction. Government pressure has been obviously to reduce costs, and to appear to be as cheap as possible is important.” Ratings houses also respond positively to low fees. But Elvish warns that too much pressure on trustees to cut fees might force them to prioritise price instead of performance.

“You want your trustees to make the best investment decision to achieve the best risk/return outcome for your portfolio on a net-of-fees basis,” he says. You don’t want them to be obsessed with the fee outcome, but the return outcome.” Trustees should also investigate the true costs of the operations of service providers, such as funds managers, knowing that the published fees they offer might omit indirect costs. For example, some fund managers use soft dollar gifts to help smooth relationships with brokers, while swap structures in some hedge fund-of-fund allocations ignore underlying manager costs. Given the ability of managers to cut fees while being exposed to similar true costs, trustees could potentially forgo investing in a range of attractive strategies that appear expensive, opting instead for lower-cost products. But both products actually carry similar true costs. The fund might miss out on investment skill while making no real fee savings. “You want obsession about the right things, not the wrong things,” Elvish concludes.

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