For many years fund managers have lived on the gravy train that is our superannuation system, but the good times may be coming to an end.
In the interim report, the Murray financial system inquiry has found that super fees were too high compared to other countries and asked for feedback on pushing down the cost of managing Australian's retirement savings.
In April this year, the Grattan Institute found that Australians spend 1% of gross domestic product (GDP) or close to $20 billion a year on superannuation fees on assets of around $1.8 trillion. It confirms findings by the Reserve Bank of Australia and Treasury, and anecdotal evidence of the unjustified high cost of managed funds.
When fund managers can charge a fee based on a percentage of assets of more than 1%, they can benefit from rising markets as well as an inflow of superannuation guarantee payments of more than 9% for employed persons. That means they earn more for doing pretty much the same job, and adding no value for the additional fees earned.
Add in the fact that a vast majority of actively managed funds fail to beat the market over the long term and tend to hug the index anyway, exchange traded funds (ETF) and passively managed funds with very low fees make much more sense.
And then you have some of our largest listed investment companies like Argo Investments Limited (ASX: ARG), Australian Foundation Investment Company Limited (ASX: AFI) and Milton Corporation Limited (ASX: MLT) charging management fees of less than 0.2% for doing the same job as fund managers.
What remains to be seen are the solutions to slash the super fees most Australians pay. Certainly a move away from fees charged as a percentage of assets under management would be akin to throwing a hand grenade into the funds management industry. It would almost certainly be detrimental to the performance of companies like Platinum Asset Management Limited (ASX: PTM), Perpetual Limited (ASX: PPT) and BT Investment Management Ltd (ASX: BTT) and their shareholders.
Interestingly, Warren Buffett doesn't own any fund managers and why would he?
