There is growing disquiet that MySuper’s mantra of ‘simplicity and low cost’ will be interpreted by retail super funds as a cue to index everything, pressuring industry funds to dismantle their higher-fee alternative investment programs.
Armed with their big marketing budgets, Chant West Financial Services chief Warren Chant said the retail providers could easily create the impression they were acting in “the spirit of the Cooper review” by offering all-passive super funds for extremely low prices. He said AMP’s ‘Flexible Core’ product, costing just 65bps plus $1.50 per week, would only be the first example of this trend.
“These MySuper products will be cheaper than today’s industry funds which generally favour active management and significant investment in alternative assets…But there is ample evidence that, over the long term, industry funds, with their higher investment costs, have provided better [net] returns than retail funds. Not only that, they have also produced better net returns than funds which are 100 per cent passively managed.”
Chant said MySuper would only put pressure on industry funds to lower their costs by “dismantling the very elements that have led to their superior long-term performance – let’s hope they resist this”.
He added that significant cost reductions could be made by eliminating the “over-elaborate investment menus that, in some funds, can run to hundreds of investment options. Why not simply say that a default fund must offer no more than say 10 multi-manager investment options?”
“That would provide sufficient choice to cater for different objectives and risk tolerances. It would also reduce confusion, promote active choice and eliminate a lot of unnecessary cost. It would also be far preferable to MySuper’s ‘one size fits all’ approach, which says the same investment strategy that suits a 60 year old also suits a 20 year old.”
Access Capital Advisers (Access CA), whose entire business is founded on institutional appetite for unlisted investments, could actually benefit from the Cooper Review, according to chief executive Alex Austin.
“The MySuper concept is about transparency and reasonable costs, both of which are delivered by funds investing directly in unlisted deals,” said Austin, who along with Graeme Matthews founded the side of the Access CA business which arranges just that.
He felt that fund-based, or fund-of-fund based investments into alternatives were under more threat in the Cooper environment.
The general manager of client and member services at Plum, David Woodall, said he hoped funds would retain active strategies, but observed that some had already gone down the fully-indexed route.