Comparison of retirement fund costs – challenges faced by decision-makers
Without standardised disclosure measures the layering of fees and costs has made it very difficult for employers and trustees to make accurate comparison of costs of retirement solutions. However, the new ASISA standard on disclosure of fees for retirement funds is set to change this, prompting better transparency across the entire retirement industry.
Quaniet Richards, Head of Institutional at Nedgroup Investments, explains that the new ASISA Retirement Savings Costs Disclosure Standard that will require retirement charges to be reflected across four separate components over various investment periods: investment management charges; advice charges; administration charges; and ‘other charges’ - including regulatory, compliance and governance costs.
“This is a very welcome development in an industry that has been plagued with opaque fee structures and we fully support this implementation next year. It will make the analysis of fees and costs associated with retirement funds on umbrella funds much simpler and essentially enable employers to realistically compare apples with apples before making a decision,” he says.
Richards says administration costs are poorly disclosed and often very complex – especially when it comes to comparing different umbrella fund fee structures.
“Although a range of retirement funds that is set up independently could enjoy the benefit of economies of scale due to lower investment management charges from the underlying asset managers, other kinds of fees such as performance fees of the underlying asset managers often result in higher total investment charges for the member.”
Disconnect between cost-saving and what the members experience often manifests in ETF structures. Although these solutions can appear attractive from a fees point of view on the surface, Richards urges employers and trustees to be mindful of the risks and costs associated before making a decision.
“Without clear rules and the benefit of scale, it is likely that investors open themselves up to implementation risk and higher transactional costs when structuring multi-asset passive solutions. This detracts from performance and in some cases increases volatility,” he says.
Richards explains that by simply investing in the SWIX and the SA REIT ETF members’ exposure to property would automatically increase – and they therefore would have been negatively impacted by the recent property sell-off. He urges employers and trustees to better understand the total costs associated with ETFs and the implementation risk of creating a multi-asset passive portfolio.
“Even a small saving on fees can make a dramatic difference to member’s overall retirement savings. We urge all employers and trustees to remain informed about these new requirements – and to make sure that they are aware of all of the costs associated with the retirement solutions that they are considering before making a final decision,” says Richards.
Batseta is a leading industry body which actively contributes towards the advancement of the retirement fund industry through engaging with appropriate authorities and stakeholders. It undertakes interventions that ensure that consumers are financially literate and protected, that the regulatory environment is conducive to foster a culture of retirement savings and that retirement funds are active owners of the assets under their care.
Batseta aims to contribute towards the personal development and growth of its members in order to provide services of high quality in the interest of retirement fund members and beneficiaries.
Batseta promotes transparency, cooperation and collaboration as well as the highest ethical and governance standards for retirement funds and their fiduciaries.