L-R: Scott Tully, Ian Fryer and Stuart Eliot. Photo: Simon Hoyle

It’s time for the super sector to bust the myth that higher investment fees necessarily mean lower returns for members, the Fiduciary Investors Symposium held by Investment Magazine, Professional Planner‘s sister publication, has heard.  

With RG97 and the Your Future Your Super performance test pushing a strong narrative of bringing down fees at all costs, members may actually be missing out on attractive net returns from more expensive to manage asset classes, said Chant West general manager Ian Fryer. 

The research house says regulation has put effective pressure on funds to cut fees, with the median total fee for retail funds falling by 48 basis points in the decade since MySuper was introduced, while the median industry fund fee dropped 2 basis points. 

But this means that when it comes to fees, industry funds and retail funds now have relatively little differences. 

Fryer told the symposium that some funds are finding new ways to make themselves look cheaper to members. 

“The fee that everyone’s interested in is…the fee on $50,000 [account balance]. But a number of funds now have a much higher average balance,” he said. 

“If you’ve got a much higher average balance, but everything depends on how your fee [looks] at $50,000, what you can do is actually have a higher percentage-based fee, because at $50,000 that doesn’t look like a lot, but on your average balance, it’s actually a lot more. 

“So we’re seeing some funds rejigging their split between dollar-based fees and percentage-based fees. 

“It’s a way that you can look cheap but still get more revenue into your fund.” 

Administration and investment fees make up the bulk of the total, but Fryer warned against reducing investment fees just for the sake of it. 

“At the end of the day, what puts food on the table of retirees is not low investment fees, but higher returns net of those investment fees,” he said. 

“Sure, do things like co-investments and negotiate with your managers – those things are no brainers. But let’s not move away from some asset classes or some investments, which could do really well on a net-return basis but [say] we can’t touch them because they’re too expensive.” 

Portfolio thinking 

Nevertheless, Fryer acknowledged that it’s easier said than done for funds to combat the ‘higher the fee, lower the return’ narrative in practice. As funds feel the need to become increasingly cost-disciplined, their perspectives around portfolio construction are also changing.  

Retail fund AMP Super has been going through a simplification process which saw it halve its number of fund options and external asset managers in the last four years. Head of portfolio management Stuart Eliot said the move has helped reduce some fees and costs.  

Eliot said AMP Super held two asset classes that are prominently “expensive in all three ways” that is high fees, high tracking error and considerable illiquidity – in hedge funds and private equity.