Super fund members paying $20bn in fees

And that's each year

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published November 5, 2012 12:09 pm AEDT

If you were paying $20 billion a year in fees, you'd want some pretty good financial performance. Unfortunately, we may not be getting what we are paying for.

Research by Roy Morgan suggests investors with their own self-managed superannuation funds (SMSFs) are much happier with their funds' financial performance, than investors in retail or industry funds.

According to the research, 64% of investors in SMSFs are happy with their performance, compared to just 48.9% in industry super funds and a lowly 42.5% in retail funds. Poor investment performance and the level of fees and charges is the major reason that people are switching out of retail and industry funds.

It has been regularly noted that at least 70% of super funds fail to beat their benchmarks, and that's before fees. Add that to the poor performance of global stockmarkets over the past five years, and it's no surprise that investors have become disillusioned with their managed funds. A recent report commissioned by the Industry Super Network found fund members are paying around $20 billion in fees each year, with $6.2 billion of that going to fund managers.

A lack of transparency when it comes to fees, wages and bonuses paid to fund managers, and being charged a fee based on the amount of funds you have invested are all issues the industry needs to address. In fact, several industry super funds are pushing for fund managers to publish more information, and that they should have the same level of disclosure as the funds themselves.

For listed fund managers like Perpetual Limited (ASX: PPT), BT Investment Management (ASX: BTT), Platinum Asset Management (ASX: PTM) or K2 Asset Management (ASX: KAM), there's much more information available, but many funds aren't listed, or are part of a larger organisation such as the big four banks and AMP.

SMSFs now control more than 30% of the total $1.4 trillion invested in Australian superannuation funds, according to the latest data released by the Australian Prudential Regulation Authority (APRA). That share is likely to rise in future if the trend continues, which could trigger consolidation, lower fees and greater transparency in the funds management industry.

Bring it on I say.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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