Commissions to impact retail funds says ratings agency
12 May 2009,
MODELLING by an independent ratings agency has shown that members of industry super funds could be more than $80,000 better off in retirement than workers in retail funds, due to the impact of sales commissions and fees over a 40-year period.
But according to Andrew McLauchlan, managing director of McLauchlan & Partners, the issue has become a ‘storm in a tea up’ with the majority of financial advisers disclosing fees up front.
“Whilst this is seen as the biggest issue for super account holders and the media, for the majority of leading financial planners this will have minimal impact due to those advisers moving away from the ’hidden’ trailing commissions paid by various fund managers,” says McLauchlan.
A joint submission by Industry Super Network (ISN) and the Australian Institute of Superannuation Trustees (AIST) recommends sales commissions on super contributions be abolished in an effort to improve the adequacy of retirement savings before increasing contribution levels.
The submission has been made to the Henry Review on Australia’s Future Tax System.
“It is evident that high fees and sales commissions can reduce workers’ final super payout,” says David Whiteley, executive manager of the ISN.
“Before employers or employees are required to increase contributions, the efficiency of the super system needs to be examined, particularly the fees and commissions paid.
The dramatic compounding effect of the difference in fees over time means it is critically important for super fund members to keep an eye on the cost of their fund, especially fees and commissions paid from their super account.”
Whiteley says new modeling shows that due to low average fees and no commissions, industry super members could retire with an additional 20 per cent more super compared to their retail fund counterparts.
“With statements about to be mailed out to many super fund members, now is the right time for people to do their homework and check what they are actually paying in terms of fees,” says Whiteley.
Modeling by SuperRatings used average existing fee levels and projections over 40 years, to give an indication of the potential impact of fee differentials between the two sectors. The review covered 34 funds representing more than eight million members.