Retail superannuation funds face grim future

Research by KPMG suggests that nearly one quarter of retail superannuation fund members are likely to switch funds during the next year, compared with less than 10% of industry super fund members.

KPMG partner Tim Thomas says lower fees of industry funds is a major contributor to the expected exodus of retail fund members. However, he cautions that industry funds risk a similar loss of members if they do not take action to improve the quality of their services.

KPMG has also found that nearly 80% of consumers now prefer to interact with financial services providers via digital channels:

“Industry funds got the free kick from the royal commission, and people are certainly voting with their feet toward industry funds because of the lower fee structures but if they don‘t quickly step up their service quality, including adviser services and digital services, then we think they will also lose members,” he said.

“For now, these results suggest that retail funds need to be more concerned”…

KPMG’s latest Super Insights report showed that retail superannuation funds have lost considerable market share over recent years:

This makes sense, given industry superannuation funds easily outperformed their retail counterparts over the last decade, according to Chant West:

The primary reason for retail funds’ industry underperformance likely relates to their excessive fees.

According to the Productivity Commission (PC), retail funds’ fees are way above not-for-profit funds:

As such, retail funds deliver lower net average returns:

The PC also found that management fees in Australia are much higher than in most other OECD countries, driven largely by retail superannuation funds.

Leith van Onselen

Comments

  1. PlanetraderMEMBER

    Leith
    I agree with the sentiment however you are likely wrong with the statement “The primary reason for retail funds’ industry underperformance likely relates to their excessive fees.” fees are one thing but another is the fact that asset allocations across different “balanced” funds tended to weight equities higher in industry funds which was no doubt part of the performance story.

    Also i actually took one industry fund on your list when i was looking at a few, used their asset allocation in their balanced fund year by year and then applied the same allocation to the sector index options they provided.The results were basically the same with the index slightly winning but very small margin. This suggests that no value was added at all by the manager – at least you aren’t paying for the lack of addition like you do in a retail fund.Given asset allocation makes up most of a fund return why bother picking managers or stocks and paying for it?

    • DominicMEMBER

      I think some (maybe the majority) of the equity allocations in those funds are in illiquid funds which are hard to value in real time.

      Therein lies the issue.

  2. wait til the property bubble finally bursts and 90% of SMSF is wiped out. Now thats goona be fun