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Super hard when it should be Super easy.

ASIC’s report into fees and costs has landed, just as our own superannuation solution nears release to our clients. It largely supports our experience in developing our new superannuation solution – the fee comparisons in most PDS’s are a nightmare. 

Darren McShane’s report into ASIC’s regulatory guide 97 covers the disclosure of fees and costs by super funds and other investment schemes. The 232-page document makes for the usual thrilling government research reading and coincidentally focuses on a major gripe we have come across as we have been modifying our online onboarding system to handle the differences of superannuation:

… costs matter when making decisions about long-term savings products like superannuation and MIS Regulatory strategies to manage cost impacts include providing consumers with information that they can use to make more confident and informed decisions.
There are multiple types of consumer choices relating to superannuation or MIS products and not all should necessarily have the same regard to cost impacts. Comparative decision-making
about financial products is difficult. Fees and costs are only one of a complex set of variables that a consumer wanting to make an objective comparison would have to come to grips with. To facilitate this, disclosure of information about fees and costs needs to be as simple as possible.

Our thoughts exactly.

As a point of difference to some (most really) of the superannuation providers out there, we have decided to tread a slightly more comprehensive path then just accepting a ‘blind roll over’ and leaving potential ramifications like higher fees and losing insurance as ‘buyer beware’, disclaimed in the small print.

We aim to do this by offering a range of options that a prospective client can choose to help illustrate cost differences between their current superannuation provider and a potential investment with Nucleus Wealth.

In order to do this, we have to maintain a database on most major superannuation funds, data primarily derived from their publically available Product Disclosure Statements. This was quite an involved process that included collecting the data, homogenising it so we could then offer it to new clients in an easy to read table for comparison and understanding.

It is here the fun begins.

Administration fees (also can be called Account keeping or membership fees) that come in fixed (ie. per week, per annum) costs, as a component of assets in the fund (ie. 0.20% pa. on the balance in the fund) or confusingly, a mixture of the two, often with tiering (ie. xx% on the first $250,000 etc) and occasionally with a maximum amount.

Asset management fees, typically only charged as a component of assets (ie. 0.70% on the balance of assets in that option) with can vary wildly depending on whether the client is in the default, and indexed based option or a more colourful mix of active asset managers. These are usually known as either Management Expense Ratio’s (MER) or Indirect Cost Ratio’s (ICR). Add to this the potential for transaction fees, buy/sell spreads (ie. the difference between buying units and selling units in each investment option) and of course our favourite – Performance Fees (ie. 20% of ‘outperformance’) can help throw another cost in the mix to really conflate the odds of a good comparison.

But it doesn’t end there.

Along come a myriad of other fees attached (allowed?) from a recommending financial adviser such as Contribution Fees (ie. 4% of any money entering the fund), Adviser Service Fees and finally, entrance and exit fees from the fund itself.

Once again from the report:

The point being made is simply that, as a consequence of this diversity, product-to-product comparison based on Fee Templates is very compromised. It is particularly difficult to make any relative cost assessment as between Platforms and superannuation funds or MIS.

 

Just considering the research completed to put out such a comprehensive paper, I feel your pain, Darren.

As someone who has worked in the industry for many years, the plight of a ‘risk and rollover’ adviser is well known to me. It is a challenging and thankless task as you trawl through the elaborate and needlessly intricate product fees in an attempt to compare products and provide a suitable recommendation to a client that suits their needs and leaves them in a better position. And this is from a professionals point of view!

Clearly, there is some work to be done, including a broad homogenisation of administration, investment and transaction fees that encapsulates the entire cost of being in the product and can be fairly compared to others in the market. I question the use of performance fees within general superannuation products, one, because it can potentially create a liability on future returns if calculated and paid in arrears, and two, generally as whilst they have the appearance of encouraging outperformance, in reality, offer the ability for a fund manager to take undue risk for a chance at the upside, with little downside risk for the fund manager but lots of downside risk for the investor.

The paper concludes with 34 (!) recommendations to both ASIC and general product providers with special mention of the potential for a publically managed database to be created (potentially available through ASIC’s MoneySmart website) as a means to provide ‘robo-info’ to consumers in a consistent and clear manner.

Having just created a database to do exactly that, I’m hoping that our own onboarding system complete with a fee table that features a discrete administration, investment and transaction fee estimates, we are presenting ourselves as an example of what the future of superannuation will look like.

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