Retail super funds lack fee transparency claim industry funds

26 May 2017

Key industry superannuation fund body, the Australian Institute of Superannuation Trustees (AIST), has heavily criticised retail superannuation funds for being insufficiently transparent with respect to fees and performance.

Utilising research it commissioned from SuperRatings, the AIST not only sought to point to the relative underperformance of retail master trusts, but claimed that the fees charged by retail funds were higher in the MySuper arena.

AIST senior policy adviser, Karen Volpato said the SuperRatings research should be a cause for concern that poor disclosure and data across the choice sector means members are unable to compare their fund’s performance.

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The AIST-commissioned SuperRatings Fee and Performance Analysis 2017 examined more than 600 MySuper and choice investment options on a like-for-like basis, with Volpato saying it found that the vast majority of retail master trusts underperformed profit-to-member funds with similar asset allocations.

“But perhaps the most blatant examples of choice failing members is where the fees charged by the average choice retail fund for their balanced investment option is substantially higher than in the MySuper arena, especially on higher account balances, despite the fact the two funds have asset allocations within the same range,” AIST said.

Volpato claimed the poor track record of for-profit funds in the choice sector pointed to the need for improved data as well as consumer protection.

“In a compulsory super system where consumers are free to make a choice, there is an onus on regulators to ensure that investment options can be easily compared,” she said. “We need to collect better data and we need to ensure disclosure requirements are meaningful, honest and fair. As it stands now, choice is delivering sub-optimal outcomes for those who end up in for-profit retail funds.”

Volpato said current moves to improve disclosure did not go far enough, given that the choice sector had been granted many exemptions over a number of years from having to either disclose or provide reports to the regulators. 

“The lack of comparable data – including arising from ASIC’s new RG97 disclosure requirements – means that consumers cannot be sure what they are getting into,” she said, noting that AIST had been a long-time advocate that net performance – what the member receives in their superannuation account – is critical.

“However AIST also recognises that how fees and costs are calculated and how they are disclosed is important since this impacts on net return,” Volpato said. “What matters most in terms of retirement outcomes are net returns but we also need to be able to properly compare fees and costs of all super funds, not just MySuper.”

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"there is an onus on regulators to ensure that investment options can be easily compared"

Some industry funds have had up to 40% or even more in unlisted assets, how can this be easily compared?

If an adviser recommended 40% in illiquid assets they could easily be shot for most client circumstances.

Does Karen represent superannuation trustees, does Karen understand what is going on in 'superland' at all, does Karen understand industry funds won't even tell you how they actually invest their money?

All industry super funds typically provide is broad asset allocations with no currency, country, industry, listed/unlisted exposure details. Transparency isn't a concern here?

Let's not even start with deterioration in industry group risk T&C's and let's not even mention the taboo subject of risk commission kick backs to industry funds on group risk which offsets the very fees Karen is trying to compare.


In the same vein of transparency, when are the industry funds going to disclose their "super smoothing" technique of skimming funds off the top of years of good returns and allocating these funds to years of bad returns?

In the same vein of transparency, when are the industry funds going to disclose their "super smoothing" technique of skimming funds off the top of years of good returns and allocating these funds to years of bad returns?

Very rich coming from Industry Super funds - the least transparent of all!!

I'd be real curious to know how SuperRatings determined the asset allocations to base their comparisons too. It's little wonder ISA only use SuperRatings and ChantWest to provide the research, they don't want to actually look into all the details like Zenith, Lonsec and Morningstar do.

Case in point, ChantWest often release their performance report of the 'best' Balanced funds across the country. They frequently list the AustralianSuper and SunSuper balanced funds as 60/40 or 70/30, when in actual fact they are much closer to 85/15 (of course they'll do better in an equity bull market).
When queried on this, ChantWest's only answer was that they just go by the information THE SUPER FUND GIVES THEM to determine their ratings!

Top research that!!

The MySuper changes are a bit like your Grandma trying to pump lollies into your kids - the best intentions but not necessarily the best way of going about things.

One of my clients set it out quite clearly - "they changed my super to lower fees. That's great but they took away my high-earning investment option into one of those average options". Yes they did. And the "imperative" to reduce fees impedes a client's willingness to stop the change happening. Funny that.

The primary fee change of course was the removal of ongoing commission to my business, which i happily pointed out to the client, and that is the real point of my adding my 1c worth in here.

A large part of the MySuper changes for retail funds is the removal of adviser commission - so the "study" would be inherently flawed for not recognising this. For those who question everything in the negative - this means that embedded services are being ignored in the comparison, which is clearly a flaw. If it is mentioned in the study and not mentioned by the spokesperson then we have a further problem.

For those who may be interested, a deeper look will sometimes show that certain retail funds have actually raised their fees for MySuper, after allowing for the impact of removal of adviser commissions.. bet that doesn't get much airplay.

Fee transparency discussions by the Industry Funds spokespersons are a non-issue until the day every member of an Industry Fund is able to compare within the industry fund group. Each industry fund website allows the public to compare that fund with a retail fund - but not with other competing industry funds. That is a closed shop, and contrary to the tone and intent of most discussion on fees.

The utter ridiculousness of public fee discussion in this area is frustrating.

Yet it is seemingly ok for industry funds to gouge profits from life insurance fees (most of which is withdrawn from member accounts without the client's approval) and then use this profit to artificially reduce the fees on member's accounts, including those who don't hold insurance!!! Please explain how this behaviour is acceptable AIST....

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