In its quest to lower default super fees, the Australian government should be "brutal" on transparency and require employers to become more involved in fund selection, says Vanguard's global chief executive, Bill McNabb.
Mr McNabb, who is visiting Australia this week as Vanguard Australia marks its 20th anniversary, had some advice for the Coalition on superannuation reform.
As part of its response to David Murray's Financial System Inquiry, which found default super fees are higher than they should be, the government has tasked the Productivity Commission with examining the efficiency of the system.
Mr McNabb said the first thing the government should do is employ some "brutal transparency" when it comes to fees.
"[Looking through] the value chain of all the fees in the marketplace, I struggled to understand the cost [super members are] paying," he said.
In the US, the Department of Labor has created a fee report that has done an "amazing job of simplifying the calculation of plan sponsors", Mr McNabb said.
"[Plan sponsors] are able to really understand what they are paying for as a company – and the [employees] are actually able to see [the fee structure]," he said.
Australia could also learn from the 401K system in the US which, while not mandatory, is "the most competitive part of asset management in the entire United States", Mr McNabb said.
The reasons fees are low within 401Ks is because companies are the plan sponsors, and they have a fiduciary duty to the employee, he said.
"When you go into Google, for example, it’s the Google treasury staff and HR people who are putting the plan together," Mr McNabb said.
"I can assure you, having been part of those meetings, they are very conscious of what their employees are paying – and they sign off on it. So they’re not relying just on the employees to make good decisions on the cost side, [employers] are actually putting pressure on themselves.
"When [Vanguard] first came to Australia, we thought [the super system] would grow up much like the 401K system and it would be done company by company. There’s some of that, but it’s a really small part of the overall system.
"I don’t know if there’s a way from a regulatory standpoint to encourage the employer to have a bigger role in terms of oversight without making it bureaucratic," Mr McNabb said.
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