Check the fees which can crack your nest egg

Warwick Daily News - - FINANCES LIFE - AN­THONY KEANE

CHANGES to su­per­an­nu­a­tion funds’ fee dis­clo­sure are mak­ing nest eggs more ac­count­able, a timely prompt for own­ers of Aus­tralia’s 29 mil­lion su­per fund ac­counts to check what they are pay­ing.

New fund fee rules came into force last month and the Aus­tralian Se­cu­ri­ties and In­vest­ments Com­mis­sion has just an­nounced a fresh in­de­pen­dent re­view into the fees shown in su­per state­ments.

Su­per spe­cial­ists say fees are only one fac­tor, and in­vest­ment re­turns will have a big­ger im­pact on your nest egg, but it pays to know whether you’re be­ing over­charged.

“Clearly fees do mat­ter, but cheap doesn’t mean bad, and ex­pen­sive doesn’t mean bad ei­ther,” said fi­nan­cial strate­gist Theo Mari­nis.

“If you are pay­ing 1 per cent for ad­min­is­tra­tion and 1 per cent for in­vest­ment fees, the fund has to earn 2 per cent be­fore you start break­ing even.”

Chant West head of re­search, Ian Fryer, said the new rules added about 0.2 per cent to funds’ in­vest­ment fees, but this was not a real rise – it was sim­ply funds be­ing forced to show pre­vi­ously undis­closed trans­ac­tion costs and in­vest­ment man­ager fees.

“Ul­ti­mately what you want is strong re­turns af­ter fees over a long pe­riod of time,” he said.

Here are five su­per fund fees to check.

AD­MIN­IS­TRA­TION FEES

These may be ex­pressed as a dol­lar value or per­cent­age of your fund, and Mr Fryer said any­one charged more than 0.66 per cent of their bal­ance was pay­ing more than most peo­ple.

He said the aver­age dol­lar­based ad­min­is­tra­tion fee for MySu­per funds was $90 – 0.18 per cent of a $50,000 bal­ance.

IN­VEST­MENT FEES

This is what you pay in­vest­ment ex­perts to man­age your money, and it can vary widely be­tween dif­fer­ent funds. Ex­pen­sive in­vest­ment man­agers may charge up to 2 per cent, but a new breed of low-cost ex­change traded funds may charge less than 0.1 per cent.

PERFORMANCE FEES

A ris­ing num­ber of funds and in­vest­ment man­agers are tak­ing a cut of any out­per­for­mance they de­liver above a cer­tain thresh­old such as a share­mar­ket in­dex.

Performance fees can be off­set by lower on­go­ing fees, but it’s worth check­ing if there are any claw­back pro­vi­sions if your fund goes gang­busters one year — col­lect­ing a performance fee — then tanks the next year.

AD­VISER FEES

Fi­nan­cial plan­ners may ei­ther charge a flat fee or a per­cent­age fee based on your as­sets. Mr Mari­nis said this should be checked, as per­cent­age-based fees on big sums of money could run into thou­sands of dol­lars. “We charge a flat fee,” he said.

LIFE IN­SUR­ANCE

OK, tech­ni­cally it’s not a fee, but in­sur­ance can drain hun­dreds of dol­lars a year from your su­per fund bal­ance. If you have big debts and a fam­ily to sup­port, in­sur­ance pro­tec­tion is vi­tal, but if you’re sin­gle, cashed-up or near re­tire­ment it may not be as worth­while.

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