$45.6 billion worth of super trapped in ‘fat cat’ funds

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$45.6 billion worth of superannuation is “trapped” in ‘fat cat’ super funds, charging high fees for low performance, according to Stockspot.

The digital investment adviser and fund manager has released its 5th annual Fat Cat Funds Report. In 2017 there were 521 ‘fat cat’ super funds, including 217 fat cat funds that were on the list in 2015.

Stockspot defines ‘fat cat’ super funds as those that have performed worse than the category average over 1, 3 and 5 years and under-performed by more than 10% over that period.

“It’s not the first time many of these funds have appeared on the list,” said Stockspot.

“Yet little is being done to reduce fees or move members into better options. These funds rely on consumers lack of awareness and for the most part they have avoided scrutiny.”

“By far the big banks continue to control the most Fat Cat Funds.”

“ANZ (including OnePath) took out the Gold award for the 4th year running with 218 Fat Cat Funds which together charged its customers $114 million in fees. It was followed by AMP with 87 funds and Commonwealth Bank with 47 funds.”

Stockspot says that its “naming and shaming the worst offenders” is making a difference, pointing to an 18% decrease in the number of Fat Cat funds from 2016. The amount of super in fat cat funds is also lower, down from the $59.4 billion in 2016.

Fees charged by fat cat funds have also fallen, down by $177 million to $600 million in 2017. The average fee of a fat cat fund fell from 2.04% in 2016 to 1.99% in 2017.

Stockspot found that fat cat funds have lower investment returns and took a higher average fee, compared to ‘fit cat’ funds. 24% of the returns in a fat cat fund is taken by fees, compared to 8% in a fit cat fund. 69% of fat cat funds charge fees of more than 1.5% a year, while 78% of fit cat funds charge less than 1.5%. These differences can have a considerable impact on retirement savings. Stockspot calculated that being in a fat cat fund could cost a young person $311,733 in fees over their lifetime, leaving them with $846,957 in retirement. In a low fee super fund their balance at retirement could be over $1,178,081.

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