An alternative set of proposals for reducing costs and boosting competition to those in the Grattan Institute Super Sting report, were presented by Ken Marshman, chair of REST Super at the AIST ASI conference in Alice Springs.
In a stirring and strident presentation which avoided an outright confrontation with Jim Minifie, the author of Super Sting, who shared the same platform, Marshman said he wanted lower fees and greater competition too and outlined six proposals for achieving this.
He called for greater collective action to fight the imposition of more regulation, which might add costs in the system and estimated the cost of implementing Stronger Super at between $1-2 billion so far.
Also, he identified in-house fund management as making a “big difference” in challenging the economic rent charged by the larger fund managers with multiple clients in pooled funds.
In contesting the notion from the Grattan Institute that super funds should be made to compete more on price, Marshman suggested instead it would be smarter to have greater competition between funds on the values of trust, reputation and brand.
“There is this lack of price based competition because we are buying something 20-30 years into the future. Buying on the basis of price just does not cut it,” he said.
To this end, he saw a bigger role for advertising in explaining the strengths of funds to members.
He also called into question the process of paying fees to rating agencies, such as Super Ratings and Chant West.
“We must have an even basis to compare one fund to another,” he said. “Are the service providers who compare costs independent enough? We can push further on this. You cannot take a fee from an organisation that you are then going to review.”
Lastly, he saw greater sanctions from APRA against trustees who were in breach of trust to members, or with poor returns members, as a necessary step for the industry.
Minifie’s presentation was defensive in comparison to Marshman’s, following a flurry of critical comments in submissions to the Financial System Inquiry.
Using phrases such as “I would stand by my assertion” and “I would not step back from our central proposition”, Minifie reiterated his belief in the government organising employer tenders based on fees and that Australia was not a “cost leader” internationally.
“Given our scale we could have a better cost ratio,” he said, conceding that regulation had played a part in these costs.
He identified much of the additional cost in the Australian system, compared to government run schemes in the UK and Sweden, as due to the offer of additional products such as choice funds, which he described as often being sub-optimal.
“If value for money was driving the sector would these exist?” he asked.
In all this debate nobody comments that the fees paid to fund managers are lower in Australia than elsewhere. For instance global equity funds will be paid less here than in the US and Europe for the same mandate. If costs are still high here then it must be the internal costs of super funds that are to blame. Perhaps we could cut costs at the top as most super funds have far too many trustees? AustralianSuper has 18 trustees of which union members number 8, which is replicated across the super funds. I know unions claim the need for union representation but methinks they are pulling our legs if not pulling the wool over the members’ eyes.
Dead right. If the cost due diligence on investments was replicated on repetitious admin tasks, costs across the board may fall.
‘Across the Board’ is the operative phrase!
Each Trustee earns around $50,000 p.a. Cutting AustralianSuper’s number of trustees from 18 to 9, which is a sufficient number, would only save $450,000 p.a. However it would mean that the trustees could not be accused of hypocrisy especially when they claim their funds are low cost and they promote them with the ‘Compare the Pair’ advertising. I am sure they would not want to be accused of hypocrisy.
Ken is great at challenging the debate – but really? Less regulation, more advertising cost??? All this at one of the very many conferences the industry indulges – this one at Alice Springs! I think the fat cats of the AIST are seriously out of touch with ordinary Australians.