12 October 2015
by Jacob Greber

Big banks grab $10b in super fees, industry funds say

The big four big banks are snaffling an outsized share of fees generated by the $2 trillion superannuation industry, according to research commissioned by Industry Super Australia (ISA) as it steps up a fight against government moves to overhaul the not-for-profit sector's governance structure.

An estimated $30 billion in fees were pulled from savers' pockets in 2014-15, 91 per cent of which flowed to commercial wealth management groups, which includes managers, platform providers, advice groups, insurers, consultants and custodians.

The report, by consultancy Rainmaker, also finds that 33 per cent of all super fee revenue went to the major banks, and if AMP is included, the figure jumps to 44 per cent.

ISA chief executive David Whiteley warns that many of these fees are for services carried out across bank conglomerates with "very little or no transparency".

This should be cause for concern for fund members and an area ripe for disclosure by lawmakers and regulatory authorities, he said.

"You've got a $2 trillion super industry generating $30 billion in fees and $10 billion of that goes to four banks, and these are the banks campaigning to dismantle the superior not-for-profit model."

The House of Representatives is expected to resume debate on Thursday on a bill – introduced after Prime Minister Tony Abbott's ousting last month – to change governance rules for industry super funds.

A Senate economics committee is also considering the measures – which would remove any requirement for unions or employers to be represented on the boards of funds – and is due to report back early next month.

The government has previously indicated that it would like the legislation passed before the end of the year.

Lukewarm response
However, there are signs that some crossbench senators are lukewarm on the proposals given the outperformance of industry super funds versus retail providers, a sense that the industry fund puts a larger share of investment into infrastructure, and unease about the links between banks and the government.

The Rainmaker research shows not-for-profit funds, with about 41 per cent of all funds under management, draw about 25 per cent of total fees. By contrast, retail funds gather 50 per cent of fees despite holding only 30 per cent of funds under management.

Self-managed super funds paid out 25 per cent in fees, with 29 per cent of funds under management.

All three groups, however, effectively funnel revenues to the major wealth management groups, which are dominated by the big four.

Complicated pathways
The report suggests that revenue super industry fee revenues flow through complicated pathways that are not always transparent.

"It is these interrelationships that have made policy reform within superannuation so complex because many seemingly minor changes to fee disclosure or transparency requirements have had significant ramifications for business models within the superannuation industry," Rainmaker said in the report.

Only 9 per cent of fees are paid to non-for-profit trustees for administration and operations.

Mr Whiteley urged senators to crack open the structures of banks' vertically integrated businesses and reassure the public that the interests of fund members are placed before profit.

"Compulsory superannuation is a foundation of our retirement income system, it should never be a honey pot for the big four banks."