APRA acknowledges high risk, high fee products can driver better returns

The Australian Prudential Regulation Authority (APRA) has acknowledged data confirming that high risk, high fee products generally generate higher long-term net investment returns, but that is not going to stop the regulator trying to put downward pressure on fees.

An APRA answer to a question on notice to the House of Representatives Standing Committee on Economics has seen the regulator’s deputy chair, Helen Rowell confirm the status of higher risk, higher fee products.

Rowell had been asked by Shadow Assistant Treasurer, Andrew Leigh what a good average level of fees for the Australian superannuation sector to be charging.

She said that while APRA had not conducted an exhaustive search of academic literature, its MySuper data “shows that investing in higher risk asset classes (which in many cases involve higher investment fees) also generally generates higher long term net investment returns”.

However, Rowell’s answer said that it was “important to be clear on the nature and components of fees that were included in any analysis of the relationship between fees and returns, to ensure like for like comparisons were made”.

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“Similarly, it is also important to consider the level at which any such analysis is undertaken (i.e. whether it is at a fund, product, asset class or other level) in order to understand the conclusions that can be drawn from it,” she said.

“Nevertheless, APRA agrees that there is scope for fees and costs in the Australian superannuation system to be reduced, and achieving this is a key component of our supervision focus on enhancing member outcomes for superannuation members,” Rowell said.