Commonwealth Bank to raise $25m from extra super fund slug
Depending how you look at it, superannuation funds charging fat fees to cover the cost of complying with new legislation is either a brazen impost on consumers or a model of transparency.
It emerged this week that the Commonwealth Bank is charging some super fund members a “regulatory reform fee” of $102.50 for the year, on top of other administration and investment fees.
Financial Services Minister Kelly O’Dwyer criticised the concept of the fee, describing compliance as a cost of business. She described the $102.50 fee as “out and out gouge” with no justification.
The counter argument is disclosing the fee separately rather than hiding it in the general administration fee provides transparency to customers and gives the bank greater flexibility to alter it as circumstances change.
The Commonwealth, which offers superannuation and wealth management through Colonial First State, declined to provide details at the time but has now clarified that only some super fund members will pay the full $102.50, while others will be charged a maximum of $40.
The Commonwealth confirmed it would raise $25 million in total from both levels of fee. The bank added it charged the same fee last year.
A Commonwealth spokesperson said the $102.50 fee applied to customers of its “wrap” products. Wrap products are superannuation platforms offered by retail funds that financial advisers use to manage their clients’ super investments.
Fairfax Media has obtained three separate letters informing customers of the fee sent to members of Colonial First State's FirstWrap personal super product, customers of the bank’s FinHQ wrap product and clients of Commonwealth Private.
However, the Commonwealth spokesperson said members of Colonial First State’s flagship FirstChoice super fund would be charged a percentage fee of 0.2 per cent on balances, capped at $40.
So what do other funds charge, on a like-for-like basis?
First, the not-for-profit industry funds are not charging these fees at all. Ian Fryer, head of research at superannuation consultant Chant West, says the industry funds had absorbed the cost of compliance and did not raise administration fees to compensate.
However, Fryer notes that industry funds are less complex as they offer less investment choice than retail funds. While many industry funds offer “direct investment” options, members pay extra for this.
“Industry funds say, and probably rightly so, why do you need hundreds of options, and indeed the industry funds have been some of the best performing funds,” says Fryer. “For the vast majority of people you don’t need to be a wrap, you need to be in a really good industry fund with good investments.”
Kirby Rappell, chief executive of superannuation researcher SuperRatings, says regulatory reform fees are the “exception rather than the rule” for super funds. His firm’s research shows retail funds have higher overall fees than industry funds, even without the regulatory reform fee.
Among the retail funds, not all big banks are created equal, but the Commonwealth isn’t the only villain.
Two of the other retail funds operated by big banks – ANZ’s OnePath and Westpac-owned BT – charge similar fees to FirstChoice. However, a spokesperson for NAB, which owns MLC, said the bank did not currently charge a regulatory reform fee on any products and has no plans to do so.
In the wrap space, Fryer said “it’s fair to say” that Colonial First State and Westpac-owned BT have the highest fees for the wrap products.
BT’s flagship product in the wrap space is Panorama. The “expense recovery fee” – equivalent to a regulatory reform fee – is $95 plus 3 basis points.
Fryer says the wrap products offered by Colonial First State and Westpac-owned BT have the highest regulatory reform or expense recovery fees and also the highest overall adminstration fees.
While the regulatory reform fee with FirstWrap is $102.50 for balances above $5000, the equivalent “expense recovery fee” for BT’s flagship Panorama product is $95 plus three basis points, Fryer says.
“They do disclose them, it’s not like they’re trying to hide it, but they’re not including them in their regular administration fees,” Fryer says. “We think it’s best practice to work out your administration costs including regulatory reform costs and then include it in your admin fee so consumers aren’t having to add up lots of numbers to work out what they’re paying.”
FirstWrap’s total adminstration fee, including the regulatory reform fee, for a $250,000 account balance is about $1700 a year, and BT’s Panorama is slightly lower at $1670. However, Panorama is slightly higher at a balance of $100,000 or $500,000.
Meanwhile, ANZ’s Grow Wrap product is cheaper than FirstWrap or BT Panorama at the lower end, and becomes more expensive when the account hits a balance of $600,000.
MLC’s wrap product has no regulatory compliance fee and Fryer says MLC’s overall administration fees were about $1400 a year for the wrap product.
Stockspot, which offers automated financial advice, names the big four banks and AMP as the worst culprits for high fees in its annual Fat Cat Funds report.
“The decision to slap a ‘regulatory reform fee’ on top of their already ridiculous fees is ... giving the government the middle finger,” says Stockspot chief executive Chris Brycki. “They know that the majority of their clients will stay with them despite blatant fee gouging.”
Caitlin Fitzsimmons is the editor of Money.