An article published in the Australian Financial Review last week provided some revealing data about average fee levels in the superannuation environment – Wake up to Super Fees.
The article reported the following broad fee levels:
Average fees charged by MySuper schemes for not-for-profit industry schemes - 1.01%
Average fees for comparable retail funds - 1.32%
Total fees charged on actively managed retail default funds with $100k balance - 1.10% to 2.39%
Total fees charged on actively managed retail default funds with $250k balance - 1.05% to 2.33%
Total fees charged on passively managed retail default funds with $100k balance - 0.55% to 1.09%
Total fees charged on passively managed retail default funds with $250k balance - 0.52% to 1.04%
The article goes on to debate that the performance of a particular fund is not just about fees. There can be no question that the end outcome for a member of a super fund is the net return after fees and taxes. However whether an active or passive approach will achieve that outcome will be the topic of endless debate.
The research we have considered at A Clear Direction clearly suggests that keeping costs low should lead to a better outcome, on average. Investment approaches that utilize a passive, index based approach to building portfolios generate lower costs for clients and in our opinion provide better long term outcomes. This is why index funds are at the core of our investment philosophy for building client portfolios.
So how do the fees stack up for A Clear Direction’s approach?
The ARF article suggests that the typical default balanced fund mix is 30% defensive and 70% growth. Based on a 30 / 70 asset allocation mix (30% invested in cash & high quality fixed interest, 70% in growth assets such as shares and property) the indicative administration and investment fees that clients of this firm are charged are:
$100k portfolio 0.79%
$250k portfolio 0.78%
Please note that here are adviser fees on top of those amounts, as there would be if an adviser was involved with any of the average industry fee levels mentioned earlier. We believe that our fee level compares very favourably to the fees across the superannuation industry and therefore puts clients ahead of the game in terms of long term net returns after fees and taxes.