Superannuation funds’ asset management costs are destined to fall on average to around 40-50 basis points, predicts Chris Cuffe.
The chair of UniSuper speaking at the Frontier Advisors Conference in Melbourne on Tuesday saw the removal of default status for industry funds as one of the key drivers of lower management expense ratios (MERs).
Cuffe said that unless a fund has some very unique propositions they would be forced to compete on fees
“UniSuper has this to a degree but I would be a fool to think that others wouldn’t try to get in, so I think preparation is what it’s all about,” he said. “I can see a four in front of MERs even for those with active funds management, certainly before too much longer.”
He was confident that industry funds with MERs of 50 bps would be popular, while he forecast that fee competition would start to cut into retail funds’ profit margins to the extent that they would struggle to compete.
“If the profit margin erodes too far then the shareholders, many of which are large institutions, will simply cut the activity as the allocation cap doesn’t make sense,” said Cuffe.
Cuffe likened the pressure on banks in superannuation to that in financial planning.
“It wouldn’t surprise me right now if a few of the boards of major banks of Australia are sitting around talking about whether they should have a financial planning arm or not. Does it make sense? Do they make enough out of it to pay off the capital and reputational decline?”
He added that even today if many individuals knew the true cost of some of industry funds they might think twice about whether they want to have the hassle of an SMSF.