Fees, retirement and insurance under the microscope

Warren Chant and Andrea West
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(Pictured: Warren Chant and Andrea West)

Fees, retirement incomes and insurance are dominant issues for big super funds and other fiduciary investors. They are the themes backgrounding selection of the annual Chant West superannuation and pension fund award winners, to be presented at a black-tie dinner in Sydney on May 6.

The third annual awards cover 12 categories and aim to recognize excellence by highlighting what the winners have done to stand out from their peers and help to lift standards across the board.

Chant West principal Warren Chant, who has been a vocal campaigner against Australia’s apparent obsession with low fees – which he says may be to the detriment of members on a net-return basis – said that both the Cooper Review and Murray Inquiry had contended that fees are too high and that reducing them would improve returns. They argued that, because most members are disengaged, the system lacked strong price-based competition.

““We strongly disagree, and we are very concerned that this perception that fees are too high will become accepted as reality,” Chant said. “What we see, every day of our working lives, is intense competition between major funds and between high quality investment managers competing for the funds’ business. Whether members are disengaged or not, they still benefit from price competition at the fund level and, as a result, the vast majority pay very reasonable wholesale fees to have their savings expertly managed.

“In this year’s awards we want to identify those funds that have resisted the siren call to ‘low cost’ and concentrated their efforts on spending what is necessary to get the best results for their members.”

Chant’s partner, Andrea West, said that early bookings for the event, at the Ivy Ballroom, had been stronger than previously and that super fund trustees and executives, along with managers and other service providers, should book soon to avoid disappointment. See website: 

The categories are:

Super and Pension Funds of the Year

The super fund award focuses on the experience of a typical member, that is, someone with an account balance of up to $50,000 in their employer’s default MySuper fund.  It recognises excellence across a range of key criteria, namely: investments, member services, fees, insurance, administration and organisational strengths.

The pension fund award takes into account the same criteria (except insurance) but recognises that the pension phase of superannuation is very different. “Our pension fund award is aimed at the typical retiree member, who has an account balance of about $200,000,” Chant says.

“They have different priorities and place different demands on their funds compared with accumulation members, and our methodology reflects that.  We are particularly interested in funds that recognise these differences and pay real attention to the needs of their pension members.”

Corporate Solutions Fund of the Year

Many Australians working for medium-sized and larger employers have their super with a corporate plan.  There are about 20 funds, mainly master trusts that cater for this sector.

Chant says: “It’s a large segment of the industry, with assets of about $150 billion and about 4 million members.  There are substantial economies of scale available, and we look at how these have been harnessed and applied in the best interests of members.”

Specialist Fund of the Year

While most major funds have a broad spectrum of members, there are others, both large and small, that cater for a fairly homogeneous group – often from a single industry or occupation – that has unique or specialised needs.  To satisfy those needs, these funds need to pay a lot of attention to their benefit design and members services. 

“They still have to score well in all the main criteria we consider, but we want to identify and recognise what they do that is specific to their membership and results in greater member engagement and better retirement outcomes,” says Chant.

Advised Product of the Year

“Retail master trusts mostly target people who are more engaged with their super (so-called ‘choice members’), Chant says.  They have different needs to the majority of default fund members.  They generally have advisers and seek a wider range of investment choices and more ‘bells and whistles’ in the services the fund provides.

“These funds have invested heavily in dedicated systems that help advisers manage their client base and access their client details.  While they represent only a small part of the industry, at least in terms of numbers of members, it is still an important sector and we want to recognise this,” says Chant.

Asset Consultant of the Year

While small in numbers, this is by far the most influential group in the industry in terms of their ability to influence member outcomes.  It’s right to publicly recognise those asset consultants that provide outstanding service.

“This year we are focusing on the consultants’ contribution to investment thinking,” says Chant, “and, in particular, whether their strategic investment research has advanced the way funds invest. 

Best Fund: Investments

Chant says that investments are the most important aspect of superannuation.  “What we are most interested in are a fund’s investment processes and resources and whether they are likely to deliver strong returns.

“We continue to take a dim view of funds that simply increase the level of passive management in order to reduce costs.  We think that’s likely to be a false economy, and not in members’ best interests.

“However, we recognise that passive management can play an important role in structuring a portfolio, particularly where managers face capacity constraints and in those asset classes where it is very difficult to generate net alpha.

“The quality of people and processes continue to be the key issues we assess.  We look closely at investment governance, including the investment experience of the Investment Committee and the internal investment team, and who is actually responsible for making decisions.”

Best Fund: Member Services

Member services are the second most important aspect of superannuation, says Chant.

“This year we have placed particular emphasis on member statements.  Do they identify whether the member has a retirement income gap and, if so, are there effective calls to action to encourage them to do something about it?  We are also very interested in the robustness of funds’ retirement calculators, because after the member statement this is where they can best help members understand their retirement goals and whether or not they are on track to achieve them.” 

Best Fund: Insurance

Insurance has become even more important over the past year or two, mainly because there have been sizeable increases in premiums as a result of a surge in disability claims. 

“This has prompted many funds to review the structure of their insurance offering to see whether it really meets the needs of their membership,” says Chant.

“Assessing a fund’s insurance offer is one of our most difficult tasks, because insurance is very complex and individual specific.  Premiums vary according to age, gender, occupation and smoker status, meaning that there are about 1,000 individual situations to assess.  We take all those situations into account when assessing premiums – and of course we also look at conditions and the appropriateness and sustainability of the benefit design.”

Best Fund: Innovation

Recognising innovation within the industry is a key theme of the awards.  “Last year we focused on MySuper as it had become fully operational in January 2014,” says Chant. 

“This year the award is looking at innovation more generally.  We have seen innovation in many areas, for example, in insurance offerings, retirement income solutions, account consolidation processes and member communications.”

Best Longevity Product

Investing in retirement, as opposed to investing for retirement, is one of the hottest topics in the superannuation industry.  Chant is keen to encourage funds to develop new and innovative products for retirees.

“Currently, there are only a handful of products that truly cater for the needs of this group.  There needs to be more innovation and more lobbying of government to help make capital protected products and other longevity-aware products more viable.”

Integrity Award

Chant says that disclosure is one key focus of the integrity award.  “Despite considerable advances in the disclosure required by our regulators, we still see too many funds that are not as transparent as we would like them to be, especially about their fees and insurance premiums.

“But there are funds that stand out for doing the right thing.  They tell their members what they really need to know, they do so in a way they can understand, and they comply with the spirit as well as the letter of the law.  This award seeks to identify those funds, reward them in a small but public way and encourage others to reach for similar high standards.

“In the same way, we want to recognise funds that have done the right thing by their members in terms of their MySuper investment design.  In the current climate, it would be all too easy to make changes just to reduce costs, so it takes some courage to stick with your investment beliefs and aim for the best net return, even if that involves incurring higher costs.”

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