The Productivity Commission is being urged to crack down on fee-gouging by super funds after finding more than 3.2 million super members are being charged excessive fees.
A persistent “tail” of high fee charging funds (fees of more than 1.5 per cent of assets) has grown from 14 to 17 per cent of super accounts, despite the federal government moving to ban exit and switching fees in the May budget.
The commission’s draft report in May found that members paid $8.8 billion in fees (excluding insurance fees and premiums) last year, despite the overall levels of fees reducing over the past decade.
The latest analysis released on Friday deals the retail super sector another blow with retail funds accounting for 89 of the 92 high-fee funds with assets worth $213 billion.
“There remain significant gaps and inconsistencies in how funds report data on fees and costs”, the Productivity Commission said on Friday. “Higher fees are clearly associated with lower net returns over the long term.”
Industry Super Australia deputy chief executive Matthew Linden jumped on the findings, calling on the Productivity Commission to act on high fees.
“Fee gouging and persistent under-performance cannot be a feature of our compulsory superannuation system,” he said. “While more and more members are switching in advance of any action by government and regulators there needs to be a methodical process to turn off the rivers of lazy fee revenue and wind up chronically under-performing products and funds.”
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The Productivity Commission also take aim at financial advice fees charged by major retail funds with 10 retail super funds accounting for more than 90 per cent of advice fee revenue or $1.4 billion.
Other data suggests that retail funds with high advice fees are also charging grandfathered trailing commissions which have not been captured in the data but have come under attack at the royal commission.
“The Australian government should require superannuation funds to clearly inform, on an annual basis, all members who are subject to trailing financial adviser commissions,” the Productivity Commission repeated on Friday.
Critics including the Australian Securities and Investments Commission are calling for an end to grandfathered trailing commissions following revelations from the royal commission.
Fixed fees better
Retail funds were also identified as the worst offenders on administration fees with almost all not-for-profit funds levying a fixed dollar administration fee while percentage-based administration fees were more common for retail funds.
A member with a $50,000 balance in the average retail fund pays $374 a year, compared to the average not-for-profit fund fee of $127.
Percentage fees rise with the member’s balance, from $220 for an asset balance of $50,000 to more than $1200 for an asset balance of $500,000.
The analysis also takes aim at related-party expenses, which totalled more than $4 billion in 2016-17 with around one-third of all administrative expenses sourced from related parties, again more prevalent in the retail sector.
Investment expenses totalled $3.8 billion with around 17 per cent ($627.5 million) spent on services procured from related parties.
The analysis also found that Australian funds incur much higher investment costs for domestic and international equities and international fixed income, compared to other countries.
Despite the findings, the Productivity Commission said better data and transparency is needed with many funds refusing to provide information despite multiple requests.
“Due to a lack of information about the amount and quality of services purchased by a fund, it is not possible to compare the costs of administrative services sourced from related and non-associate providers,” they said.