Switching clients out of superannuation funds into master trust products hit the headlines recently when AMP copped an enforceable undertaking from the Australian Securities andInvestments Commission (ASIC).
The core of the problem is fees, which the industry says are justified and, as everybody charges them, competitive.
Critics say fees are an insidious blight on giving advice and skew the adviser’s impartiality depending on which master trust they have on their approved list.
Critics also argue that clients are confused by the amount of fees charged by each master trust, although advisers do have the ability to dial them down to zero — and many do.
In the adjoining Money Management table, (see page 22 Money Management September 21, 2006) fees are listed for all superannuation master trusts and comparisons between products are almost impossible due to the different fee structures used by the players.
The only common thread is that the minimum fees are zero.
But fund switching into superannuation master trusts has been vehemently attacked by industry funds, which claim to be the losers of such transactions.
Cbus chief executive officer Sandy Grant does not hold back with his attacks on fees and advisers using master trusts.
“The protagonists of fees have two motives,” he says.
“First, there are the stakeholders and high paid [master trust] executives who have their snouts in the trough.
“Second, the protagonists claim the client is paying for administration, but 80 per cent of those fees are going to the adviser.”
Grant argues a fund member thinks they are going to a financial planner for advice, “but end up going to a platform salesperson building their commissions”.
“Even if they don’t get advice, they still pay a fee,” he argues.
“The justification for a fee is tenuous.
“People go to get advice and they just get sales pressure.”
Proving there is no love lost between master trusts and industry funds, Investment and Financial Services Association chief executive officer Richard Gilbert argues fees are all about “user pays”.
“The fees on a platform are about having the user pay,” he says.
“The alternative is to bundle all the fees together — and then we would be accused of cross-subsidising.”
Gilbert argues that because superannuation is a complex subject individuals need advice, and the vehicle for managing members’ funds is a master trust.
“Master trusts are doing what consumers want and if they weren’t, they wouldn’t survive,” he says.
“The number and size of master trusts is growing, which is down to consumer demand.”
Platform providers also argue fees are transparent and it is up to the adviser to decide what to charge through dial-down facilities.
Aviva general manager, products, Tim Cobb says both platform and advisers are transparent.
“The client can see what the fees taken from the master trust account are and the adviser fee is also transparent,” he says.
“Typically, the planner sets down what this fee is, usually the cost of advice, and this comes out of the client’s account.”
Cobb admits the debate is whether this is a fee or a commission.
“The fees are becoming more transparent as the client can see what has been taken out of their account. As long as there is fee disclosure and an increasing level of transparency.”
Macquarie Adviser Services head of product and marketing Matthew Rady agrees about the transparency of fees on master trusts.
“I think what people want is full disclosure,” he says.
“We give the adviser the choice of low fees if they want it.”
Rady says in superannuation master trusts the adviser can dial up the fee.
“The amount they charge varies, but all fees are disclosed,” he says.
While some master trust critics accept disclosure is occurring, they still argue the fee structure is complex and causes confusion.
Australian Consumers’ Association (ACA) senior policy officer, financial services, Dr Nick Coates says: “The complexity of fee structures makes it difficult for consumers to navigate around the different superannuation master trusts,” he says.
“The fees have to be simple and, being a compulsory superannuation product, consumers need to be told the information succinctly.”
Coates says the ACA would like to see the fees charged commensurate with the value of advice and the quality of the product the investor is getting.
“For consumer-driven competition, fees need to be presented in a way that is accessible for them,” he says.
“And that means not putting trails in the MERs [management expense ratios].
“If we want consumers to access super and take active decisions, you can’t keep adding on layers of fees.”
Coates argues sorting out the complexity of fees is the responsibility of the whole industry.
He also argues that master trusts using layers of fees should not be seen as providing competition.
“We want to see real competition in fees,” he says.
“We don’t want to see layers of complexity and then see what happens with the lack of competitive pressure on fees.”
Gilbert admits master trust structures are complex but argues that is due to the complexity of superannuation regulations.
“But the fees are coming down and will continue to come down,” he says.
“I don’t think the argument that fees are complex is sustainable.
“Under FSR [Financial Services Reform] we have a fee template.
“There is a paradigm of fees, but people can make comparisons and they are making calls on the basis of that.”
However, Grant is not convinced.
“The purpose of the fee structure is to cause confusion,” he says.
“It is very simple to show the impact of fees. If a master trust showed the outcome of an investment impacted by fees, people could then look at the fees and go to another provider for a comparison.”
Cobb says different platforms take differing views on how to charge fees.
“We charge a percentage of the administration fee whereas some advisers take an initial fee,” he says.
“There is still pressure on pushing fees downwards,” he says.
“The real pressure is to provide value for what you are charging.”
Rady also says there has been a decline in fees over the past five years.
“Each party, the fund manager, the adviser platform provider, have seen fees drop 10 per cent over the five years,” he says.
“So there is some serious fee pressure.”
Rady says the industry is responding to the demand for disclosure of fees and he sees it as an opportunity to look at the whole fee structure again.
“The focus is on fees and that is heading in the right direction,” he says.
“Fees will come down with healthy competition.
“We want competitive pressure, not regulatory pressure on fees.”
The push for fee-for-service will have an impact on fees as, technically, advisers offering this charging method should be dialling down the fees on master trusts.
MLC has made a stand by announcing its adviser groups will all be moving towards fee-for-service, but it is also working on making products that will accommodate this charging method.
MLC general manager superannuation and investments Anthony Waldron says an adviser is not taking a fee if they are offering fee-for-service.
“They can dial down their remuneration to zero,” he says.
“We are launching the Masterkey Fundamentals superannuation platform later this year, which starts fees at zero.”
The client will be able to have the advice fee added in the adviser service fee in the product, or they can have the adviser make a charge for the advice.
“It will help eliminate the confusion on fees,” Waldron says.
“Transparency is what we are intending so people can see what they are paying for.”
However, critics of fees don’t accept the move to fee-for-service as a solution.
Grant says dealer groups promoting fee-for-service are just creating a new way of charging another fee.
“Fee-for-service is only relevant if you receive the service,” he says.
“What really happens is there is a high up-front fee, and they are using that as fee-for-service.”
It seems the critics are never going to be satisfied until master trusts stop charging clients fees.
And adviser demand for fees would seem to make this a non-event.