Just a week after the industry super funds totally outperformed their retail and bank backed super fund cousins, there are signs that the message is getting through.
As I pointed out in comparing the performance of funds last week, higher investment fees are the Achilles heel for the for-profit funds and are the biggest reason why industry funds are heading the performance pack.
BT Financial cuts fees to grab scale
Well this week BT Financial Group, which is controlled by Westpac (ASX: WBC), took the interesting step of significantly cutting superannuation and managed fund platform fees by around 40 per cent.
That move alone will cost BT around $70 million in annual revenue and $50 million in cash profit, which also shows the sort of margins available for the platform providers.
While platform fees are only one of several fees that investors face when they use a financial planner, they have been a significant bugbear for many because they are so hard to avoid and like so many superannuation fees are charged as a percentage of assets, which makes them expensive for those with larger balances.
In simple terms a platform is like a back office for advisers – it allows them to choose from the many investment products on the platform for their customer and will then handle all of the record keeping for them.
In general industry funds don’t use external platforms as much because they deal direct with customers rather than through financial planners and run the administration of their funds internally, which is one of the reasons they have lower fees.
Industry funds also tend to offer a smaller and more limited number of investment choices, although some effectively have internal investment platforms that can be customised.
Favouritism a thing of the past?
The dodgy thing about platforms – apart from the added expense – is that they sometimes do deals with big adviser groups to give them cheaper access but charge higher fees for smaller advisers.
BT have done away with that sort of favouritism with a flat fee of $540 year and an 0.15 per cent administration fee for customers invested through the BT Panorama Investments and BT Panorama Super platforms, although it should be noted that so far the lower fees only apply to new customers!
Other platform suppliers feel the heat
That announcement immediately put a torch to the belly of the other platform providers, slashing the share prices of competitors such as Netwealth (ASX: NWL) and Hub24 (ASX: HUB) and also caused temporary weakness in the share prices of AMP (ASX: AMP) and IOOF (ASX: IFL).
Partly that is because investors are now anticipating a new era of greater competition and a price war between platform providers in the wake of the Royal Commission into financial services but also because they sense that some of the banks might retreat from the superannuation space, with Westpac now trying to get bigger to justify the cost of establishing its platform business.
The way Westpac will get bigger is to move away from the “bad old days” of luring in the big adviser groups through discounted platform fees to luring in the smaller dealer groups through having lower platform fees than some of its competitors.
That is how competition is meant to work to reduce costs, although so far Australia’s compulsory superannuation system with its disengaged customers and incentive based financial planners has been more focussed on creaming off often unjustified fees rather than lowering investment costs.
If the Royal Commission has at last brought some competition to bear, that can only be a good thing for the retirement savings of millions of Australians.