The draft report of the Productivity Commission into superannuation, as critical as it is about the system, at least has a silver lining with respect to fees. Unlike APRA’s public statements in the past, the Commission has made 38 references to “net returns” and only three references to “low cost”. Maybe we have turned the tide.
As previously published, John Peterson of Peterson Research, an experienced asset consultant and currently a member of the investment team of a big super fund, believes that APRA’s form and behaviour has leaned towards encouraging super funds to focus on gross costs in whatever assessments are being made about them.
The actual after-cost and fee performance of MySuper options, particularly the defaults of the commercial funds, which have a bent towards plain vanilla passive strategies compared with the not-for-profits (as shown by Chant West research) is, as we all know, not going to be good for returns to members over the long term. Passive is great, for a while. And then you get caught in a bubble and lose a lot of money when it bursts. Has anyone told APRA that?
To be fair, APRA denies having this bias towards gross headline costs as a main target for funds rather than net returns. The regulator’s actions, however, don’t indicate that. At least the Productivity Commission, which we find plenty to disagree with, gets the fees and charges issue.
As previously published, John Peterson says: “While APRA may not agree, it is clear that the superannuation industry interprets the regulators’ (APRA and ASIC) joint position as being in favour of lower costs and fees – including investment fees – irrespective of the effect on net investment returns to superannuation fund members.
This reflects a view across the majority of the industry that the regulators believe that investment management fees are a cost that should be reduced or eliminated. Whether or not this is APRA’s actual belief, this is a distinct case of actions speaking louder than the words referred to above. The effect of current regulation, whether it is APRA’s intention of not, is in fact to “push super funds towards lower fee investment options.”
Hopefully, the Productivity Commission’s Draft Report, in conjunction with ASIC’s review of fee and cost reporting, will help to shift the regulatory focus from fees to net returns.
With the Productivity Commission draft report published last week, there are a lot of angles – not just fees. The big one, from a media perspective, is the proposal that just 10 super funds, selected by an “expert panel”, should be compulsorily offered to employees in a default super scenario. We can leave that to the politicians to debate.
Of all the recommendations of the Productivity Commission draft report, both good and bad, most will probably fall fallow due to politics. And, to be honest, that’s probably the way it should be. From our perspective, the report’s main benefit is to get a conversation going. Let’s talk.