Superannuation funds are in front of the Hayne royal commission into banking and financial services this week and have been asked to reveal their entire fee and cost structures for the first time. The suggestion is that retail funds controlled by big institutions have been charging high fees and delivering low returns.
Well, hello! Finally the royal commission is about to highlight what I consider to be the biggest rort in our whole industry: paying someone to advise you to buy products that deliver average returns.
You do not need to pay anyone to set you up in no-brain, no-value-add products such as exchange traded funds (ETFs) or managed index funds that hold almost everything. You can buy them yourself through an online broker.
The royal commission has already picked up on “fee for no service” but this is the glorious business of charging a “fee for inaction”. The fee paid to a suited professional professing elite science behind putting your money brainlessly into big funds and ETF-style products that add no value while charging you as if they do.
It is the goal of the lazy financial planner to put you into average products because if they can, they don’t have to do anything else ever again. It is a risk-free "no worries" investment, for the adviser. Average products also come with the added bonus of rendering the planner utterly blameless for your performance under the “it wasn’t my fault, it was the market” defence. They cannot be sued for their uselessness. But they are still somehow driving BMWs.
Meanwhile, there are value-adding fund managers such as Wilson, Paradice, Cooper, Thorney, SG Hiscock, Colonial First State, Acorn, Bennelong, Alleron, Ellerston, Selector, Platypus, Cyan and, of course, Marcus Today, busting their guts to better the market. Fund managers whose sole purpose it is to add value through stock selection. We should be paid, we’re active not idle, we’re working for clients not exploiting them. We do not hold every stock, we do not remain fully invested come hell or bear market and we do not celebrate if we deliver the average. We want to smash the average and we are living and breathing our performance, day and night for your benefit. We do not sleep under the warm blanket of “hold everything” investment and we do not celebrate “not being sued”.
Meanwhile the many billions of the $2.6 trillion in superannuation money remains stuck on a platform in a bunch of generic managed funds recommended by a financial adviser who is collecting, through that structure, just about every fee imaginable. And if that is you, they thank you.
I contend, instead, that if you are paying fees you are paying for a value-add. In managed funds that means you are paying for performance and in financial advice that means paying for a financial adviser offering value-adding strategic and structural advice in tax, super, aged care, estate planning, divorce, inheritance, retirement and administration. Then maybe, but only if you want them to, it's optional, investment advice that adds value as well, not advice that invests you in the ‘average’. You can do that yourself online for $19.99 a trade in one listed investment company, or for free on one managed fund website.
It amazes me that the royal commission, which was so unwelcome, has nailed so many of the issues that needed to be “out”. I can but hope it goes one step further to address this, the biggest rort of all, and educate the millions of superannuants who are currently under the umbrella of average returns less fees that you do not need someone wearing an expensive suit professing some elite science to achieve that average. The ease with which a very average adviser can earn an elite annuity income paid for by your super without the need or pressure to add any value thanks to your ignorance is an old industry joke and that’s enough. This is the opportunity to change it.
Marcus Padley is the author of the daily stock market newsletter Marcus Today. For a free trial of the Marcus Today newsletter, go to marcustoday.com.au.