Are Australian Superannuation Industry Fees Too High?
25 Pages Posted: 2 Aug 2016 Last revised: 2 Nov 2016
Date Written: September 26, 2016
Superannuation fund fees have come under public scrutiny in recent years, with some observers arguing that fees are set too high. This report focuses on a sample of Australian superannuation funds to gain a better understanding of the factors that influence the fees that they charge. We examine how fund size, asset allocation, risk category and fund type influence investment fees. Previous research has not precisely linked the investment fee to the asset allocation of each superannuation fund in Australia. The results reveal that exposure to certain asset classes helps to explain investment fees. Our results show that this difference provides an intuitive reason as to why investment fees differ between funds. The simple economic reasoning is that the superannuation funds with higher investment fees usually have higher allocations to riskier asset classes, which are more expensive to manage. After taking into account the asset allocation for each fund, we find convincing evidence that there are differences in the fees charged by corporate funds, industry funds, retail funds and public sector funds. These fee differences exist across investment, administration and total fees. We find that industry funds charge an investment fee that is over 12 basis points cheaper than a retail fund after taking into account the differences in asset allocation. This is a significant amount given that the average investment fee is around 60 basis points in our sample.
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