Being in a ‘fat cat’ super fund could cost $200,000 in retirement savings

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Being in a ‘fat cat’ super fund – which, on average, charge fees more than twice that of some other funds – could cost some super fund members $200,000 in retirement savings.

Releasing its 2019 Fat Cat Funds Report, Stockspot says it has found that “fees make all the difference” to retirement savings.

The report finds the “usual suspects” at the top of the list of “Fat Cat Funds”, with ANZ/OnePath tied with AMP for the most Fat Cats Funds at 11. Perpetual has four, MLC and Zurich both three each.

“For seven years we have pressured ANZ to respond by reducing the fees in these funds or move clients to better performing options,” said Stockspot.

“IOOF has recently announced to purchase the ANZ/OnePath business from ANZ, so we hope they will do what ANZ failed to do – reduce the fees and improve the performance of their funds.”

At the other end of the table, Qsuper has nine ‘Fit Cat Funds’, UniSuper six, and Australian Super four.

Stockpot estimates that there is around $7 billion worth of superannuation sitting in the largest 40 Fat Cat Funds, and that this is costing $150 million in fees each year.

Stockspot find the average fee for a Fit Cat Fund – 0.93% – is less than half that of the average Fat Cat Fund – 2.07%. Also the average fee for a ‘moderate’ investment in a Fat Cat Fund (1.50%) exceeds the average fee for an ‘aggressive’ portfolio in a Fit Cat Fund (1.08%).

“The impact of high fees is more apparent every year as funds find it more and more difficult to generate strong returns to make up for the impact of these high fees.”

Stockspot calculated that the difference between 2% in fees and 1% could be $200,000 in superannuation over a lifetime.

But investment returns still matters, though super funds are also underperforming in this area.

“Index funds on average beat 90% of super funds. Not one moderate or conservative fund was able to beat Stockspot’s most conservative portfolio.”

The ‘average super fund’ underperformed both Stockspot’s portfolios and Vanguard indexes across growth, balance and moderate investments over one, three and five years.

Stockspot says more superannuation funds aren’t using index funds “because of the conflicts of interest that still remain in the superannuation industry, despite the Productivity Commission and Royal Commission into Banking Misconduct in 2018”.

“All of the players in the super game have a vested interest to appear to be ‘active’ in making adjustments to their recommendations from year to year. Consultants to superannuation funds want to earn recurring fees, and fund managers need a reason to justify their high six or seven figure salaries.”

Stockspot is hoping that the recommendations of recent reports will lead to change in the superannuation industry – including fewer conflicts of interest, more transparency on fees and performance, and lower fees overall.

“When financial advisers, trustees, executive teams, fund managers and consultants have financial incentives that are not aligned with the people they represent – the fund members pay the price when they retire.”

“With over $30 billion spent on superannuation fees every year, it is a well paid gravy train for many who work in the superannuation industry.”

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