Paying fund managers for the size of assets under management has failed to deliver value to superannuation fund members, a study on Australian equities has found.
Superannuation funds should move to a fixed-dollar fee plus a risk-adjusted performance model when negotiating fees with active Australian equities managers, the study by the Australian Institute of Superannuation Trustees (AIST) and Rice Warner recommended.
"The key issue is net returns to members. Clearly, it's a better outcome for members if they can pay fund managers less but still get the same return for the same risk profile," AIST chief executive Fiona Reynolds said.
A flat fixed-dollar fee should apply for index portfolios, the study said.
Under this structure, superannuation funds should pay no more than $300,000 when negotiating with index equity managers, even for multi-billion-dollar mandates.
By adopting a $300,000 ceiling model, a fund could save $2.5 million in fees if it invested $100 million in an index fund over 10 years, the study said.
"We need a fee model that does more than reward fund managers for managing an ever-expanding pool of assets, even when they have not contributed to that growth. In a compulsory system where you have legislated growth of 9 per cent, this is a licence to print money," Reynolds said.
