The Australian Securities and Investments Commission’s (ASIC’s) regulatory guide 97 (RG 97) has created the illusion of superannuation funds having become more expensive, according to new analysis released by research house, Chant West.
In its first survey conducted since RG97 came fully into force, Chant West has revealed that it has had the effect of suggesting that average investment fees and costs have risen by around 0.20 per cent a year.
The survey captures the latest fees for 92 MySuper products and the top 100 choice products, encompassing products with over $1 trillion in assets.
Commenting on the survey results, Chant West head of research, Ian Fryer said people should not jump to the obvious conclusion – that fees had actually risen.
“What we’re seeing isn’t a massive increase in fees. Rather, we’re seeing an increase in the fees that the regulator, ASIC, now requires funds to disclose,” he said.
“From the members’ point of view, the actual fees and costs they incur haven’t changed in most cases. There have always been costs like brokerage, underlying manager fees and transaction costs that funds didn’t report because they weren’t required to. Now they are. That’s a good thing in principle because it makes everything more transparent, but the danger is that people will take the higher published costs at face value. “
However, he acknowledged that perception was important, and the last thing the industry wanted was for members to get spooked into believing they had suddenly been hit with big fee increases.
“They have not,” Fryer said. “Now it is up to funds to assure their members that nothing of substance has really changed and, in particular, returns for members are unaffected by the new disclosure rules.”
He said that while some good things had come out of RG 97 there had been some not-so-good things as well including a distortion in the treatment of fees and costs for property investments.
“Put simply, you have to disclose more fees and costs if you invest in unlisted property rather than listed REITs,” Fryer said. “That puts industry funds at a disadvantage because their property exposure is mainly through unlisted vehicles, so they will tend to look more expensive.”
“There’s also a structural issue that means super wrap products can disclose lower fees and costs than other superannuation products for the same investments. That’s because wraps, which are widely used by financial planners, invest through managed funds (ie Managed Investment Schemes) that don’t need to disclose fees and costs in the same way as other superannuation products.”
