Jeremy Cooper’s exhortation for the industry to reduce costs spurred the development of the MySuper default option. Now it has arguably accelerated the narrowing of the gap between fees charged by industry and retail superannuation funds, recently proven by the weekly $1.50 fee charged by AMP’s new Flexible Super offering, which equals the affordability of AustralianSuper. Even before Cooper hands down his final report (due after Investment Magazine went to press), his demands for low-cost super have changed the industry. But his emphasis on lower headline fees – as cheap as $1 a week – should not ignore the opaque, undisclosed costs that funds and their members bear, or some of the quirks in fee disclosure requirements that make headline figures misleading.
Readers will be familiar with the fee leakage caused by softdollaring among some related service providers, such as funds managers, brokers and financial planners, and the lost interest on cash held with some custodians. These murky areas will be difficult to remedy but should be improved to boost the system’s integrity. But some of the basic rules determining fee disclosure also need to be fixed. When Sunsuper bought Colonial First State Private Capital (CFI) for $116 million in 2007 and took the listed infrastructure vehicle private, it negotiated a 50 per cent discount in the fee paid to the underlying manager, says chief investment officer David Hartley.
But since fees paid to managers of listed assets are not required to be included in headline costs, and fees paid to managers of unlisted assets are, Sunsuper’s fees to members appeared to rise after the transaction – despite a real reduction in costs. MySuper presents a big opportunity for superannuation providers to increase market share. But the banks, in particular, now have the impetus to create a lowcost offering. In a market without trail commissions, and lower retail fund fees, industry funds will need to find clearer competitive advantages. But apart from some tailored offerings – such as Prime Super’s conduit to trauma insurance and Telstra Super’s offering of low-cost health insurance – these niche services aren’t always obvious. Collectively, industry funds have successfully portrayed themselves as reliable, low-cost outperformers, and they have caught up with retail funds in their provision of financial advice. But they would do well to enhance their purported ties with members’ interests.