SMSFundamentals: Super Members Pay Less In Fees

SMSFundamentals | Oct 25 2019

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Super members pay less in fees

Superannuation fees charged to members have fallen for the first time in six years, while funds are using their negotiating power and paying less to external asset managers.

-Study shows super fees fall to 1.1% average in 2019 from 1.2% in 2018
-Super funds are paying less to external managers
-Fees for active global equity mandates have fallen by -7% since 2013
-The onslaught of passive investment and smart beta strategies is driving fees down

By Nicki Bourlioufas

Super funds paying less to some external managers

Superannuation fees charged to members have fallen for the first time in six years, while superannuation funds are using their negotiating power and paying less fees to external asset managers to manage some of their assets, according to two new studies. 

The 2019 Rainmaker Information super fund fee study analysed fees charged by more than 500 superannuation funds and 50 self-managed super fund administrators. The study found fund members are now paying 1.1% in fees on average. This is down from the 1.2% they were paying in 2018.

Of the 1.1% members paid in fees, 0.7% is on average paid for investment fees and 0.4% for administration and product-related fees. The report found that super funds are achieving greater economies of scale and reducing costs for their members as their funds under management grows. Total superannuation assets were $2.87 trillion as at 30 June, a jump of 6.2% from a year earlier.

“These reductions show an industry shifting towards a greater commitment to improving super for the members,” said Jason Ross, head of superannuation at Rainmaker Information.

“Last year’s Productivity Commission and Royal Commission have already started to prove their effectiveness,” he said.

Industry funds raise competition

The Rainmaker report found that the movement of investors to industry funds, or lower priced not-for-profit or industry funds, from retail super funds was also forcing fees lower.

In 2015, the average retail MySuper product charged 0.24% more than not-for-profit MySuper products. Today, this gap has narrowed to just 0.04%. This year, super funds with the biggest reductions in their MySuper Total Expense Ratios (TER) were for-profit funds: AMP Super Direct for Business, with a fall of -97 basis points to a TER of 1.19%, and AMP’s SignatureSuper Select and SignatureSuper funds, both which saw their fees fall -63 basis points to 1.21% in 2019 from 2018.

Even some industry funds lowered their fees, including Hostplus, LGS Division A and ACSRF Employer, reflecting a strong competition for member funds.

Super funds pay external managers less
A separate report reveals that fees paid by superannuation funds to external investment managers are falling for some asset classes. Asset consultant bfinance’s biennial Investment Management Fees report showcases a selection of areas where fees have declined significantly, which in 2019 included absolute return bonds, emerging market equity, emerging market debt and fund of hedge funds.

 Fees for active global equity mandates have fallen by -7% since 2013 and -4% since 2016. The median quoted fee for a $100 million mandate currently sits at 55 basis points. 

The bfinance report found the onslaught of passive investment and smart beta strategies is driving down fees. “Pricing pressure is supported by investors’ need to improve portfolio diversification, which can include reducing equity risk exposure, and the popularity of smart beta and passive equity strategies,” the report said. 

Larger reductions were experienced in global emerging market equities with fees down -13% since 2013 and -6% since 2016. The median quoted fee for a $100 million mandate in this space is now around 74 basis points, with considerable scope for downward negotiation when selecting managers, the report said. 

However, funds with consistent stronger relative returns “tend to experience less pressure on fees than their peers,” the report found.

So, the news is good for superannuation members. However, Australia’s 13.5 million super fund members still pay $2400 on average each year in fees, the equivalent of the average household energy bill, Rainmaker said. The report found gross superannuation fees in 2019 were a hefty $32 billion.

Downward pressure will remain on fees. The financial regulator APRA plans to publish analysis of the performance of MySuper products in the areas of investment performance, fees, sustainability and eventually insurance. It will use heatmaps to signal good and bad results.

According to APRA, “the heatmap will present the data in a way that can be broadly understood by those who don’t have a degree in applied mathematics and statistics and won’t require a major in spreadsheet analysis to interpret.”

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