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Outsourcing drives up retail super costs

Alison Bell (SMH) | Feb. 28, 2011
Members of large for-profit superannuation funds pay more than two and a half times the average annual costs than their non-profit counterparts if their fund outsources business functions to affiliated service providers.

All 115 funds, which have assets of over $200 million each, outsource a large number of fund functions, including administration, asset allocation and investment management, APRA said in a report on Monday.

But while 75 per cent of non-profit funds outsource at least six of eight business functions in a bid to minimise member fees, outsourcing by retail funds is done according to their business model.

"Outsourcing by retail funds does not appear to be intended to reduce members' costs, but instead may constitute part of the revenue model for the retail superannuation product," APRA said.

Non-profit funds such as public sector funds, corporate funds and industry funds are more likely to outsource to third parties, but when they do use their affiliated service providers these are unlikely to charge more than third parties.

Members of median funds in these sectors will pay 0.51 per cent in annual fees based on assets assuming all business functions have been outsourced, APRA said.

Members of retail funds outsourcing to independent third parties will pay the same amount, but members of retail funds which use affiliated providers will pay 1.33 per cent in annual fees - 2.6 times more.

Trustees of median retail funds paid $12.2 million in fees if they used affiliated providers compared to $2.3 million paid by trustees of median retail and non-profit funds using independent service providers.

Retail funds pay a lot more to fund managers of Australian listed equity funds than non-profit funds, APRA said.

But they pay less for auditing and custody services and to fund managers of global bond funds.

APRA said its analysis did not reflect compensation to fund managers or cost reimbursement that is withheld directly from gross investment returns.

© 2011 AAP


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