Are Australian Superannuation Industry Fees Too High?

25 Pages Posted: 2 Aug 2016 Last revised: 2 Nov 2016

See all articles by Andrew Ainsworth

Andrew Ainsworth

University of Wollongong - School of Accounting, Economics & Finance; Financial Research Network (FIRN)

Shumi M. Akhtar

The University of Sydney

Adam James Corbett

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate); Financial Research Network (FIRN)

Terry S. Walter

University of Sydney; University of Technology, Sydney - School of Finance and Economics; Financial Research Network (FIRN)

Date Written: September 26, 2016

Abstract

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.

Suggested Citation

Ainsworth, Andrew and Akhtar, Shumi M. and Corbett, Adam James and Lee, Adrian D. and Walter, Terry Stirling, Are Australian Superannuation Industry Fees Too High? (September 26, 2016). CIFR Paper No. 116/2016. Available at SSRN: https://ssrn.com/abstract=2814792 or http://dx.doi.org/10.2139/ssrn.2814792

Andrew Ainsworth (Contact Author)

University of Wollongong - School of Accounting, Economics & Finance ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Shumi M. Akhtar

The University of Sydney ( email )

University of Sydney Business School
corner of Codrington Street and Darlington Street
Chippendale, NSW 2006
Australia
61290369309 (Phone)

HOME PAGE: http://www.firn.org.au

Adam James Corbett

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate) ( email )

70 Elgar Road
Melbourne, VIC 3125
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Terry Stirling Walter

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

University of Technology, Sydney - School of Finance and Economics ( email )

Haymarket
Sydney, NSW 2007
Australia
+61 2 9514 3860 (Phone)
+61 2 9514 7711 (Fax)

HOME PAGE: http://datasearch.uts.edu.au/business/finance/staff/StaffDetails.cfm?UnitStaffId=5373

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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