Despite stringent disclosure requirements, members are still confused about the fees they are paying to their super funds. New research commissioned by Vanguard Australia found only 1 per cent of Australians can identify the multiple types of fees being charged to their retirement accounts.
These may include administration, investment, transaction and performance fees, and if members are enrolled in certain products or services there are also potentially insurance and advice fees.
The research, conducted by CT Group, found that respondents most commonly identify administration (74 per cent) as the only fee being charged to manage their super, followed by insurance (40 per cent), investment (25 per cent) and transaction (25 per cent). Only one per cent correctly identified all fee types.
Meanwhile, more than half (53 per cent) of respondents don’t understand the fees’ impact on their balance; and do not feel confident (62 per cent) explaining how the fees are charged to their accounts.
Regulatory guidance including RG97 requires super funds to disclose fees in a uniform manner in PDSs and on MySuper dashboards, but Vanguard Australia managing director Daniel Shrimski said there’s no consistency in website, social media or other marketing materials.
“It’s confusing, unclear, and impossible to compare,” Shrimski said in a media statement.
“By keeping fees confusing, it’s taking advantage of the low engagement and financial literacy of Australians when it comes to their superannuation.”
Transparency or complexity issue?
Vanguard Australia launched its superannuation arm in 2022, and consistent with its massive index fund business, Vanguard Super’s key selling point is its low cost. It presents a total fee on a yearly basis which equals investment, administration and transaction costs combined.
“We’re also keen to see the industry move towards communicating a transparent combined fee that members pay, rather than only citing one type of fee,” Shrimski said.
However, SuperRatings insights manager Joshua Lowen questioned if it is really the fee transparency, or fee complexity, that is the root cause of member confusion.
“Every member pays for fees, you can’t get away from them, but they [fee components] do very different things,” Lowen said.
Lowen said that of the three most common kinds of fees funds charge, an administration fee pays for member services, an investment fee pays for asset management, and a transaction cost occurs when buying and selling underlying investments.
“It’s simple to say ‘let’s do a single fee’…but members then need to understand, just because you’re in a higher cost product – if you’re investing in a way that gives you higher returns – then that may not be a bad thing,” he said.
“Like-for-like, lower fees are better, but members need to be able to work out if they are actually comparing like-for-like as well. That’s where you’re going back to that idea of complexity.”
Lowen added another challenge for a fair fee comparison is a lack of industry average data on some funds’ website.
“It’s kind of easy to compare, say, two or even three funds against each other – you can go to a fund website and look at a product disclosure statement – but it’s quite hard for the average consumer or average fund member to know if those fees are actually high or not,” he said.
“They could be comparing two expensive products, choose the cheaper one of the two, and not realise that they’re actually both expensive.
“That, probably more than anything else, is where I think funds could help.”
But at the end of the day, Lowen said it’s also on members to proactively do their own research and understand the nuances of fees, utilising things like the Australian Taxation Office’s YourSuper comparison tool.
“Members need to take the responsibility of regularly or semi-regularly examining if their fees are in line with that they expect,” he said.
“They need to make sure that they’re comparing like-for-like and not comparing fees with an investment strategy that’s very different.”