Thursday, June 02, 2005

Fee rate illustrations

Superannuation choice is leading to a new round of interest in fee disclosure for superannuation (and other managed fund products). The latest argument is (as usual) between industry funds and the retail funds.

The industry funds have put together a piece of advertising showing the impact of the current difference in annual fee on a superannuation investment over a working lifetime. As expected, given that the average industry fund has a lower fee than the average retail fund, the industry funds came off much better ($85,000, according to the advertising). The retail funds hit back, and argued that the fee differential wouldn't necessarily stay the same when projected into the future. ASIC forced them to make some qualifications to the projections, and the advertising is back on air.The Australian has more.

The retail funds further argue that you're not comparing like with like; you don't get any advice with a retail fund, whereas the retail fund fee includes the cost of advice. The question is, is the advice that you get with a retail fund worth the extra amount you pay for it?

The retail funds seem to have won this round on points, but it's unlikely to be the end.

My view? It is likely that the fee differential between industry funds and retail funds will narrow. It's certainly narrower for new investments than it is for existing investments. But it won't close entirely, because advice is a valuable thing; perhaps not quite as valuable as the amount people are (implicitly) paying for it at the moment.

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