Operational costs are on the rise and on a per member basis have nearly doubled in ten years, shows analysis carried out by consultant group Bridge.
APRA data on operational and administration costs and released in January shows that in 2004 the average per annum amount spent on operational costs per member was $94, but by 2013 this had risen to $184 for industry funds.
The research covers all the costs incurred by a fund other than its fund management and custodian fees.
The rise, much of it due to increased compliance, has been hidden by an increase in average member balances.
Also, in terms of comparing costs between funds, the historical focus on a ‘per member per week’ cost can be misleading, according to Bruce Russell, director of financial services at Bridge.
“A lot of discussion around fund cost ‘competitiveness’ was traditionally based around the ‘per member per week’ cost,” he said. “However, this is misleading as it assumes consistency amongst funds in terms of average fund size; a cost of $2 per week will obviously have a much greater impact to a member with $1,000 invested to one that that has $1,000,000.”
A table published on the Bridge website http://www.wearebridge.com.au/superannuation/fund-comparison-tool
shows funds with low average member balances, such as Kinetic Super, as having the highest operational costs per member assets at 2.10 per cent.
UniSuper at 0.23 per cent, HESTA at 0.31 per cent and AustralianSuper at 0.33 per cent have the lowest operational costs per member as a percentage of assets.
The average industry fund operational and administration cost is 0.56 per cent, the average retail funds is 0.86 per cent.
Russell says there is a sweet spot in low average operational costs per members where funds have a lot of members in their 50s with high balances.
However, this sweet spot changes, as members move closer to retirement and then into the pension phase where there are more transactions and higher member engagement, which requires higher expenditure by the fund.
The APRA figures upon which Bridge drew its analysis was called into question by Ian Fryer, head of research at Chant West.
“The APRA data has limited applicability as funds disclose operating and administration costs in different ways so we need to be careful how this data is used,” he said.
He agreed operational costs were rising, but said funds were providing more services than before such as simple financial advice for no additional cost and lots more digital communications and calculation tools.
“Fees can and should and will come down and SuperStream will make a contribution to that but we also need more industry consolidation,” he said.