Just how much major industry superannuation funds pay in investment fees to fund managers and others has been laid bare to a Parliamentary Committee.
Industry fund, Hostplus has revealed that it paid a total of just over $229 million in fees, with the greatest portion related to the fund’s exposure to Australian equities and international equities.
The superannuation fund revealed it spent $193,199,647 on management fees and $35,805,660 on performance fees.
The superannuation revealed the fee expenditure when providing an answer to a question on notice asked during hearings by the House of Representatives Standing Committee on Economics inquiring into the banks and superannuation funds.
NSW Liberal member, Jason Falinski had asked who had been the largest receiver of management fees paid by the company.
Taking the question on notice, Hostplus chief executive, David Elia said the fund had some active Australian equities managers which had performed exceptionally well.
Comments
So the industry funds only now just "reveal" how much of clients money is paid in fees to fund managers. Under the FASEA Code of Ethics, advisers have to not only disclose fees (and they already have to do so under the law), but also be satisfied the client understands the fees they pay & the adviser has to have a reasonable grounds to be satisfied. Further, the fees have to be "fair and reasonable and represent value for money for the client." There's other stuff within the Code that could be mentioned here. The question is, "would the industry funds comply with the Code of Ethics that applies to advisers?". Based on the above, I think not...
229M on $45B is around 0.5%. That is disclosed in all of their material to clients as the Investment cost. Not sure what you're on about?
Yes, and they retain the additional 0.4% of the 0.91%. Not to mention their shareholding on IFM & ISPT who would be getting part of that $229 million.
Yes I think that's about right. The Annual report shows under Member Benefits paid 94M in admin and other fees. The income statement shows another 115M in Admin Expenses and 5M in Investment expenses. So if admin fees are 94M + 115M or 209M. Then on 45B this is 0.46% as an admin fee - no different to most Wraps. And if you can then deliver via a Wrap or even a retail fund for that matter Investment at 0.5-.06% overall, we have a level playing field on cost to serve. Therefore the only debate is around transparency, asset allocation labels, who is best fit to act as a multi-manager - adviser or insto?, and philosophically whether a client wants to support unions to any degree, insurance choices etc. And, the valuations of infrastructure or unlisted. All too easy!
You shouldn't be adding the $94m and $115m together. The change in member benefits shows how much was deducted from members accounts, the income statement shows what was actually paid. Therefore the $94m makes up part of the $115m. The rest of the administration fees would have been funded from reserves. Hostplus are one of a number of industry funds that retain tax deductions (from insurance premiums and admin fees) in their reserves to fund admin fees.
Yes, there are issues with transparency but it's not as exaggerated as some people are making out. The new RG97 requirements are meant to address this issue of funding admin fees from reserves but time will tell whether it helps the issue of transparency or if it just makes it more complicated.
thanks Tom, you're right I've picked that up now. I've also found a media article where in 2018 IFM capped it's profit at 25% ( not sure how they measure) and returned funds to members ( the super Funds). But what the super funds then do is another matter. But to say not for profit or profit for members even is a furphy - if the super funds ( 27) are shareholders of IFM. So if your decision as an investor is to control what risks you can - business risk is one you can't control via use of an industry fund - and if the profit figures are correct, it is a business, not a charity.
that's the point. They go on endlessly about being "not for profit", but it patently obvious that over $100 million a year in "profits" are being made at HostPlus. So who is receiving these funds, because it isn't the members. Lots of sponsorship money flowing out to the Unions, which is then used to fund election campaigns against the Coalition. This racket should be totally shut down.
thanks I get it.
You cant use industry averages to support your arguement, nor "disclosure" - tbis wasnt accepted in the Royal Commission. At present there is an uneven playing field between retail funds distribution via advisers vs industry funds.
Anyone know how long they can continue to offer the Index Balanced at .02% ? A loss leader I understand but it seems pretty crazy. Sunsuper's is 0.17%.
If it's a loss leader they are using other member funds to fund it. This is a breach of the fiduciary duty of the super trustee. Where Laurence Blackburn Lawyers when you need them???
Pretty sure the give the funds to Macquarie who buy futures to guarantee index returns for members. Macquarie keeps the cream
So when you crunch the annual report, on a 0.91% total MER on $45 billion, less external managers fees, HostPlus seemed to be making approx $180 million in PROFIT this year. Where is this money going? Also, when you check out Page 97 & Page 98 of their Infrastructure Valuations in the last Annual Report, how do they provide accurate valuations to members, if their valuations are so rubbery as illustrated? Scary. file:///G:/Industry%20Funds%20Research/HostPlus%20Parliamentary%20Fee%20Disclosure%20-%2023%20Jan%202020/HostPlus%20Annual-Report-2019.pdf
Might want to check your math there. 0.91% ICR is for the Balanced option not the fund as a whole. The entire fund is not invested in the balanced option so the ICR for the fund is not 0.91%. Scary.
While $2 Billion is in the low cost option, the greater bulk of of the funds in HostPlus is invested in the Balanced Fund (at 0.91% MER). Plus there are other options where the MER is as high at 1.17%. So on average, 0.91% is pretty close to the mark overall. The real issue is where is the margin (that doesn't end up in member accounts) going? Lots of sponsorships to Unions, that's for sure.
Hang on the funds fees are only...yes only $1.50 per week.... This fund is cheap at "ONLY" $1.50 per week. Claiming for decades their funds costs $1.50 per week goes to the ethics and bankrupt culture of this Super fund. A very conscious decision to ignore concepts like false and deceptive advertising.
The sooner the class action begins by Super funds investors that got hoodwinked into investing into this fund the better. Just compare the return of your Hostplus fund and compare it to the best performing and ask for the difference in returns based on this false advertising.
It would be interesting to get a few more of these audits of fees paid by more industry funds and retail funds and then have these compared to similar funds in the US and UK.
Administrative, investment and management fees have always been high in Australia and the quantum unjustifiable. Some have been making lots of easy money.
Some retail funds have cut their fees but the message seems to have got through to people that high fees cost their retirement fund. It would be good if the retail funds could cut more aggressively to match their comparatively lower performance.
Let's see if NSW Liberal member, Jason Falinski is prepared to ask a general question rather one one aimed at the industry funds for political point scoring.
The question by Falinski simply proves that the SIS Act needs a massive overhaul, to ensure this level of financial reporting should be a bare minimum requirement. The Union funds have been getting away with blue murder with lack of transparent reporting (to related parties) for decades. The party is now over, in particular for compulsory default funds.
True. Steve & Hedware both make good points here. Fees are high and once we get transparency and honesty we'll only then be able realize how high when compared to overseas. For too long Industry Super funds have been claiming it costs $1.50 per week and blatantly lying about their costs, misleading performance figures and that's lead to one large sector attacking the other. Resulting in poor outcomes for all. There should only be two sets of fees. Admin and Management. Not Product Costs, indirect costs, direct costs, admin costs % based, $1.50 per week admin cost, management costs, performance costs, gearing costs, indirect property costs and finally direct property costs. Industry funds are only reporting these and still don't add them all up.
As usual we're hearing crickets from Heddie to Adam's information... if he comes back, all he will do is aim to divert to retail & bank funds being so terrible rather than answer Adam's points.
Totally agree with you on transparency and both retail and industry funds need to be forced to report, market and state against the same criteria. If not then clients of both retail and industry funds are not getting comparable information as to costs. Is it possible for funds to make it simple and tell three clients Total Gross Income less total costs equals net income? Is it possible to do same with capital gain/loss on total asset value? There's some retail funds that do this very well but others just make it very difficult - probably the same with industry funds.
Interested in your views...
How do you know fees are high compared to overseas?
You say you want transparency but think there should only be two fees disclosed, Admin and Management? How can you have transparency if you don't know what fees are included in those headline numbers? How can you then compare it to overseas where they have different fee disclosure rules?
Take performance fees as an example, don't you think it would be worthwhile people knowing how much of the investment fee is fixed and how much comes from performance fees that are variable? If you are going to show performance fees, what do you show? RG97 used to say that it should be the performance fees paid over the last financial year but they have recently changed it to an average over the last 5 financial years.
You all seem to forget that it is ASIC who tells super funds (retail and industry) what fees need to be disclosed and how to disclose them. They tried to make it more transparent a couple of years ago with the RG97 guidelines which is when the implicit vs explicit transaction costs, property operating costs, borrowing costs were all introduced. This created a nightmare because people didn't understand the disclosure and were adding together numbers that shouldn't be added together. They released new RG97 guidelines late last year and have removed implicit costs, property operating costs and borrowing costs but funds have until 30 September 2020 to move to the new disclosure.
Personally i think fees disclosed in PDSs should be simple like you suggest (because this is what ordinary people read and compare), but unfortunately that means they will be less transparent. It is up to ASIC to ensure that fund's are playing by the rules and calculating those headline fees correctly.
The only decent thing ASIC has done lately is force the Union Super funds to disclose their Intra-fund advice fees (where members are paying for advice most never receive & cannot opt out of] in their latest financial services guide. If ASIC hadn't insisted on this, the racket would have continued on totally hidden from consumers.
ASIC has pinged a number of dishonourable financial advisors not working for industry funds. January 2020 work results.
The whole super industry has been built on 'smoke and mirrors' since the SG began (and prior). What clients don't see they won't miss was the ethos, and it was taken to extraordinary lengths. AMP and other insurance companies were the past masters of concealing commissions and fees and the banks and industry funds subsequently took a leaf straight out of their book! The huge pot of money proved too great a temptation to institutions whose staff showed major moral and ethical floors in the way they dispensed their duties and sadly to the detriment of the general population.
It is always amusing to read the exaggerated moral outrage exhibited by the contributors to the retail versus Industry fund debate regarding each other's tactics. It's a great example of people "living in glass houses..." as the extraordinary behaviours of both have been well and truly evident for any participant of the industry over the last 20 years! Talk about killing the goose that laid the golden egg!
Well said particularly your last sentence.
The one-eyed critics of industry funds on this post never ask where the profits of the retail funds are going and never question the very high remuneration paid to directors and executives of retail funds.
I want the retail funds to perform better, abide to their fiduciary responsibilities, cut their fees and reduce the excessive bonuses.
"Ethical Floors"!?
Top floor..Honest
Basement..Dishonest
How does any adviser meet their Best interests duty when the funds they have to choose from are all so opaque? That would be my first line of defence as an adviser.
and how much do they pay to "sponsor" Melbourne Storm and Gold Coast Suns? I am sure that is a cost paid by members also without being disclosed......
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