Australian superannuation funds drive a much harder bargain when it comes to fees on funds management and other investment services, compared to their international counterparts, according to Tim Barron, senior vice president and chief investment officer at Segal Rogerscasey.
“I always figured that Australians really immigrated from Ireland because they’re so cheap,” he told attendees at the Frontier Advisors client conference in Melbourne last week.
“My experience, having been here a number of times over the past 15 to 18 years, is that Australians have been pretty aggressive about driving fees and I think more so than the US.”
Plan sponsors in the US tend to display a greater degree of reverence to asset managers and treat them almost like “precious art”, Barron believes.
“I think on average there is psychology of scarcity of skill that causes people to pay up probably more than they should,” he said.
Barron himself is working on a paper on the topic in what he believes is a fascinating exercise in behavioural economics.
He also outlined the further expansion of the Segal Rogerscasey and Frontier global alliance, to an additional two or three partners by the end of the year.
One of those is expected to be with an independent consulting firm in Europe/UK and the others are expected to be in the Africa, Asia and the Middle Eastern regions.
“Africa – it’s exploding. You know these markets are going to develop,” Barton said.
Another big theme at the conference was the inevitability of demographics and the effect more older members with larger balances will have on superannuation fund cash flows.
“Our expectation is that we’re going to see net cash flows halve in the next decade. Liquidity restraints will be tighter,” Michael Wyrsch, senior consultant, Frontier Advisors, said.
“The factors that we looked at that are driving switching behaviours are just going to grow.
“The options you offer will have some impact on the way members switch.”
Post retirement solutions are an area of product development that superannuation funds need to consider carefully.
“From a product standpoint and an operational standard we think there is a case for a better transition of strategies within products to retirement…particularly for the unengaged member,” Kim Bowater, senior consultant, Frontier Advisors, said.
“For the unengaged member or the member that thinks the fund is putting up the default as the best option for them I think it’s worth thinking about this.
“Obviously we’re still looking for a good return in that phase but an increased focus on downside risk…is important.”
The final speaker of the day – Alan McFarlane, chief executive officer at Dundas Global Investors – shook attendees out of their late afternoon fug when he declared that the funds management industry was “inevitably a luxury good”.
“The information advantage I believe is spurious,” he said.
“It is an action of discipline applied to information. It is not an information advantage.”
McFarlane, a fund manager himself, said if you wanted further proof of his theory, to look no further than the declining head count at institutional brokers around the world.
“I believe now my industry has to work under the assumption there is no advantage.
So they are toil advantages not intellectual advantages,” McFarlane said.
He also disputed the argument that for large superannuation funds, like AustralianSuper, bringing investment management in house would always lower investment management fees.
“We would now undercut that and still get profitable business,” he said of the lower fees.
In reference to the high costs, so accepted across the industry he said: “ That is about to change and I’m delighted to be part of that change.”
One of the big factors that he believes should drive down costs is greater use of technology across the industry.
“We are reluctant to do it [leverage technology] in funds management and my answer to that is Stockholm syndrome,” he said.
– Penny Pryor