More effective disclosure and greater transparency, particularly in relation to fees, will help combat member confusion and restore credibility to our system.” [Industry sources suggest that people could retire with up to $75,000 more in an industry fund simply because of commissions and higher fees. This has greater consequences for the national economy because tens of billions of dollars a year are lost to members overall in lost investment performance.] Excessive superannuation fees and commissions are estimated to cost savers more than $14 billion a year. “Most people simply accept the default option offered by their employer,” says Reynolds, “and many don’t even realise how much of their money is eaten away by fees.” The representative [not-for-profit] model fosters strong competition within the superannuation system because representative trustees are not bound by parent companies and are free to act in the best interest of members, rather than shareholders, contends Noonan.

“The retail model involves complex, inherent conflicts of interest,” he says, “whereas not-forprofit trustees and their funds’ executive are free of built-in conflicts and are able to select the best fund managers, custodians, asset consultants, and other service providers whilst driving a hard bargain on fees – all to the obvious benefit of members.” Within the retail sector, additional services are often cited as a reason for higher fees, and AIST agrees that, whilst there is room in the market for full-service funds, there is no clear link between higher fees and increased service levels. Reynolds warns that “where high-fee funds are default funds, their members have, generally, not chosen that level of service, but are charged for it”. Service levels in default funds should be aimed at no more than meeting the basic requirements implied by the policy objectives of the superannuation system, AIST argues.

When members elect to move to higher service funds, the additional cost of those services should be transparently reflected in the additional fees charged. “We believe the much greater administration costs for retail funds indicate a non-transparent bundling of additional service fees with base administration fees. This is particularly evident in platform products and wraps,” warns Noonan. “In the investment management arena fees are charged as a percentage of assets, and as assets have grown so have fees. We believe trustees have an important role to play in driving down the dollar cost of investment management fees, particularly moving towards fixed fees in conjunction with performance-based fees,” he says.

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