En garde … you, too, should be on your guard that you are not paying too much in super fees.Want to get a better return on your investments? You could always try guessing which investments will outperform over the coming months and put your money into them, but unless you have a crystal ball, that’s a pretty tricky exercise.
Or you could take a good hard look at what you are paying for your investments and switch to something cheaper if you are paying too much.
Fees – unlike investment markets – are something that we can all control. They are set out for us in black and white, and unlike published investment returns, published fees are a good indicator of what will happen in the future.
Yet far too many investors turn a blind eye to high fees when monitoring their investments.
The table is from a survey by Rice Warner Actuaries for the Financial Services Council, which represents the retail fund managers. It shows the average fees charged by different types of super funds over the 12 months to June 30 last year.
The council is keen to promote an overall reduction in fees since the survey was originally done in 2002. The report found industry-wide average fees have declined 1.37 per cent to 1.2 per cent over the past decade – a reduction of about 12 per cent. Between 2010 and 2011, it found average fees fell by 5 per cent.
Let’s give credit where it is due.
This is a good thing for super fund members, especially those with personal super accounts, where fees have fallen from 2.41 per cent to 1.87 per cent.
Factors driving fees down include the unbundling of advice costs from funds (though you may still pay for advice separately), economies of scale with larger funds, lower investment costs due to increased use of indexed or passive investments, and increased average account balances as markets begin to recover from the global financial crisis.
But averages can present a misleadingly comfortable picture.
As the table shows, there are still big differences in fees, depending on what sort of fund you are in. And if you drill down further to what individual funds charge, while some charge less than the average, a small number charge much more.
Rice Warner did an interesting analysis of the range of fees within each sector and the mean fees charged. It shows some industry funds and corporate super master trusts still charge more than 3 per cent, and the more expensive personal super funds charge more than 3.5 per cent.
That is too much, no matter how good these funds might claim to be.
On the other hand, there are corporate and public-sector super funds that cost less than 0.5 per cent, and some corporate master trusts charging about 0.5 per cent.
As the report points out, the averages fall quite low within the range for each fund type, which indicates the number of very expensive funds in each category is quite low.
But you can’t just assume that because you have, for example, an industry fund that doesn’t charge you for advice you’ll be paying less than you would in a retail fund that does. It comes down to what your particular fund charges. The averages do, however, provide a useful benchmark.
As the industry fund ads have told us ad nauseam, even one percentage point difference in fees can make a difference of tens of thousands of dollars to your retirement benefit. If you are paying 2 per cent or more, when the average industry fund is charging 1.3 per cent, you would have to ask why.
Numerous surveys over the years have shown that higher fees don’t buy you higher performance, though they may buy you a larger number of investment options from which to choose. Nor do they buy you better insurance or service. (Note that insurance costs are excluded from the survey.)
Indeed, many larger, cheaper funds have the buying clout to negotiate better deals from fund managers, insurers and other service providers. While cheap is not necessarily best, many lower-cost products stand up well compared with more expensive competitors.
It is also disappointing that in some segments of the market where competition is less intense, fees have barely moved at all.
Remember retirement savings accounts? They are a bank-account-style product introduced for people who want that simplicity.
But the report shows members are paying through the nose to keep their super simple, with the average fee remaining at 2.3 per cent over the past decade.
If you have money in an eligible rollover fund, you are also likely to have missed much of the fee cuts, with average fees over the decade falling from just 2.53 per cent to 2.4 per cent.
With super fund annual returns due to be mailed out, this is a good time to do a stocktake of the fees you are paying. While you can’t do much to change what’s happening in Europe or the US, you can certainly take charge of what your retirement savings are costing you.
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