Around 60 per cent of Australian super fund members are in a default MySuper option, and while remaining in the options could potentially be causing them to miss out on better returns, the hidden cost of higher fees is even more damaging.
Unite Wealth director and financial adviser Robert Rich investigated the fees for a range of industry super funds, comparing a MySuper option for a member with a balance of $300,000 to the nearest index option available on the platform.
Aiming to make the comparisons as similar as possible across risk profile and asset allocation, the results found fee gaps of as much as $3,000.
In his examples, Rich found that the fees for the default Cbus fund he investigated were $2,152, while the fees for a comparable Cbus index fund were $952. The AustralianSuper comparison was $2,062 versus $592, Aware Super was $2,482 versus $682, while the Hostplus comparison had the largest gap in fees at $3,378 for the default and just $168 for the alternate option.
Rich told ifa that while he doesn’t consider past performance in his recommendations, for the purposes of the fees comparison, he did “take a glance” at historic performance.
“Interestingly, Hostplus and AustralianSuper were very close comparisons on historic performance, but Aware was 1.3 per cent per year better performing in the cheaper alternative and Cbus was 2.4 per cent per year better.”
Where the fee impact becomes a serious issue for super fund members is, much like performance, the cumulative impact over decades.
“The fees could really significantly add up compounding over time,” Rich said.
“People often forget that they will likely have these super accounts deep into their retirement, so we’re talking decades of improved fees that will translate into more holidays and a more comfortable standard of living for the family and their children.
“It’s important to note that these fees are mostly percentage based, so the higher the balance, the bigger the dollar saving to the clients.”
Rich added that the reason that he decided to dive into the fees on default funds is because of the inherent unfairness in businesses setting their default as a higher cost solution.
“It’s only if you ask questions or delve deeper into their options that you can find a far superior option,” he said.
“The Australian public is being taken advantage of and I’m on a mission to help increase the level of financial literacy in the country and to help more families have control of their finances!”
This flows through into the lack of transparency within super funds and their fees, which he argued was meant to be a feature of MySuper solutions, yet there is “still a long way to go”.
“The investment fees are hidden within the investment options and all providers make this information really hard to locate,” Rich said.
“Even on superannuation statements – often clients will say, ‘Oh, I see the monthly admin fee is really cheap’ because they can see the transaction showing up on their reporting. Unfortunately, what they don’t see is the investment fee built into each option.
“Fortunately, we have the software that can see inside the investment options so we can accurately compare the market for our clients.”
According to Rich, an option for advisers to help clients get into the option that works best for their circumstances is to start with a “clean slate” for all of their new clients.
“Have no pre-conceived ideas about how you will be of assistance. It’s only through truly listening and understanding the nuances of each family that it can become appropriate to move or not move,” he said.
“In circumstances like this, I would encourage advisers to learn about the investment menu options with each super fund – dig a little deeper to see what’s available and not just stick to the most popular or ‘MySuper’ options.
“Fee savings are a really crucial part of our research because they are tangible and usually stay consistent or get cheaper over time. It’s a lot better to say, ‘Last year you paid $X and next year you will pay $Y’ rather than ‘Last year the option returned x per cent and this year we hope it can do the same or better’.”
