Push for ERF reform gathers speed

There are too many eligible rollover funds (ERFs) and too many charging excessive fees, according to the latest research released by The Heron Partnership.

 

The Heron Partnership research has once again named AUSfund as its top-rated ERF along with seven other ERFs, which were assessed as justifying five and four-star ratings, but pointed to a to a need for consolidation in the sector, stating that the five largest ERFs represented 90 per cent of assets at an average size of about $900 million.

 

Apart from AUSfund, the ERFs to gain Heron’s coveted five-star rating were ISPF ERF and SuperTrace ERF, while the four-star rating was awarded to AERF, AMP ERF, NPT and Super Safeguard.

 

However, at the same time as pointing to the best of the best in the ERF arena, the Heron research pointed to the high fees being charged and the fact that these fees were higher than average charged by retail funds “offering all the bells and whistles”.

 

“Fees vary between funds and the size of a member’s balance, but on average it is well over 2 per cent,” Heron Partnership executive Wendy Barton said. “By way of comparison, a retail super fund with all the bells and whistles, including investment choice and regular contributions with the full support of call centres, would have an average fee of around 1.15 per cent of assets.

 

“The logic of paying more for less continues to astound us,” she said.

 

Heron Partnership managing director Chris Butler also pointed to the fact that the impact of the global financial crisis combined with improved ERF practices had served to reduce the combined assets in ERFs, which peaked at $5.7 billion as at June 2007.

 

He said since then assets had been steadily decreasing , principally due to the global financial crisis and increased and improved relocation activities undertaken by more ERF,s, with the result that membership growth was at a historical low of just 1.8 per cent a year after peaking at 15.8 per cent at the end of June 2004.

 

As well, he said average account balances had fallen from $1,030 in 2001 to $850 in 2009.

 

Seeking to define the manner in which ERF fees were impacting members, Barton pointed out that scale had its benefits.

 

“The five largest funds for average balances have fees below the average overall fee, thus demonstrating in a meaningful way that scale can deliver efficiencies.”