Super Fees

I've been meaning to write about fund management fees for a while now, however these articles covered most of what I had to say, so I didn't bother - until now.  Just yesterday, I saw an ad on TV that talked about how having multiple superannuation accounts can lead to excess fees, and it reminded me of one of the biggest problems that I have with fund managers.

It's not the breadth of your accounts that leads to excess fees - it's the depth.  Let me explain..


One of the things that I did just before setting up my own SMSF was to have a look at where my money was actually invested.  I was expecting to find a list of companies somewhere.  Instead, I found that it was invested in other managed funds - one at the same fund management company, and two at other companies - and one of those was also invested in yet another managed fund.

And that was after I can consolidated all my super accounts into "one" single account.

Now, I don't actually know whether each of those underlying managed funds was charging management fees, but I would be very surprised if they weren't.  After all, their fee model is to charge a percentage of the capital under management.  Why would they even contemplate a discount rate if that capital was supplied by a wholesaler rather than a retailer?  More so, wouldn't they all see the benefits of charging the full amount, and each participating in the rout?

So, if each layer fund managers takes another 2% of your capital each year, it's quite possible that you're actually paying around 5% (at an average depth of 2.5) in fees.  And that's 5% regardless of whether or not they make you any money or not. 

With so many Australians being so lazy about their super, it's pretty easy to see how this could happen.

If you decide to "not get lazy", and do something with your super, don't think that consolidating all your super into a single fund will reduce your fees.  You would be far wiser to setup your own SMSF.

If anybody can prove me wrong on this - I'd love to be enlightened.
 
A final qualification - having multiple super accounts may lead to having multiple life insurance policies.  This may or may not be considered "excessive fees" depending on whether or not you need this insurance, and indeed whether or not they'll all pay out in the event of a claim.