Industry superannuation funds are feeding the low-fee mindset among clients, arguing that the only thing that matters is reducing the fees of industry funds and retail funds, according to a boutique investment firm.
Montgomery Investment Management said Australia had a heavy focus on fees even before a strategy had shown the return had delivered on a post-fee basis.
The firm’s chief investment officer, Roger Montgomery, said: “A lot of the retail funds didn’t deliver significant returns above benchmark but were charging heavy fees”.
“If we deliver 15 per cent after a one per cent fee for example, isn’t that superior to eight per cent after a 0.5 per cent fee? I would have thought it is,” he said.
Montgomery said their private, direct, and ultra high net worth investors never spoke about fees.
“All they care about is the return and the profile of the return. They want to make sure they’re going up when everyone else is going up and they don’t want to go down with everyone else,” Montgomery said.
“If we’re delivering a great return on an after-fee basis, then fees should be irrelevant. Wealthy people understand that and don’t ask and that’s why they’re wealthy because they know what’s important because they focus on the return.”
The boutique’s head of distribution, Scott Phillips, said advisers needed to focus more on whether the value proposition was right for their client.
“Don’t think that the only thing you can control is fees and the lowest fees are best,” he said.
“You need to have a look at the after return fees at the end of the day to consider whether the value proposition is right for you and I think in some asset classes it can make sense to look close to index.
But in equity markets, particularly Australia, it really doesn’t make sense.”
Phillips noted that as Australia had been so heavily focused on fees, some fund managers could get blocked out in the Australian marketplace as they started out on a higher fee than the average manager.
“On an after-fee basis, you may well trump those managers that end up in the top quartile of post-fee returns but because we’ve got such a heavy focus on trying to pay low fees, I think some advisers are foregoing boutique managers that have a higher fee and that have a higher after-fee return,” Phillips said.
