Low fee super may lead to poor quality returns

The main game in superannuation is about investment returns after fees, rather than the level of fees themselves. For commercial superannuation providers to make a profit and be competitive on fees, the area of their operations where they may be tempted to cut their costs is in investment research. This means many superannuation fund manager may forgo any chance of “beating” the market, and simply go passive and invest in very low-cost portfolios that try to do nothing more than match the market return. For example, rather than pay fees of, say, 0.5 per cent to active share market managers, why not pay just 0.1 per cent to a manager who uses a computer to keep their portfolio almost exactly in line with the share market index. That is effectively what Virgin Money is doing with their superannuation product, and they are not alone.