Members of Eligible Rollover Funds (ERF) are being overcharged and a reduction in the number of funds will result in lower fees, the Heron Partnership said.
A survey into all 15 ERF products available in Australia shows that failure to utilise economies of scale in fund sizes means that some members are being overcharged.
The survey showed there was a strong correlation between economies of scale and lower fees, with the five lowest cost ERFs rated 1, 2, 3, 4 and 6 in terms of their membership size, Heron Partnership managing director Chris Butler said.
“The economies of scale certainly deliver lower costs without necessarily sacrificing on investment aggression or services to members,” Butler said.
“In our view fees should not exceed about 2 per cent of assets, which is comparable to a retail fund with active managers and investment choice. For an ERF to charge above 2 per cent of assets is, in our view, excessive.”
Research showed that the average fee charged was 3.57 per cent on an average ERF balance of about $1,100, with 12 of the 15 ERF’s charging total fees in excess of 2 per cent of assets.
Selection and appointment of an ERF is by a superannuation fund Trustee on behalf of its fund members.
“As we see it, the onus is with the Trustees of the ‘feeder’ funds to ensure they make a careful selection of the most appropriate ERF and then to monitor it on a regular basis to check the adequacy of its performance, as it should for all of its outsourced service providers,” Butler said.
