Do clients really care about fees?
Much like their overseas counterparts, regulator in Australia put considerable time and effort (and regulatory muscle) into ensuring that the industry does what’s best for the consumer. And it’s fair to say there has been a heavy – almost myopic – focus on fees and costs.
But the question remains… is the regulator actually helping the industry deliver what clients want?
To answer that question, we need to understand what it is that consumers want. NMG Consulting recently asked around 15,000 members of UK workplace pension schemes exactly that question as part of a study commissioned by a syndicate of 10 leading UK DC pension providers (read a summary from the study’s author, Jane Craig).
The UK and Australian systems have some important differences, but it’s safe to assume that concerns about value for money are universal. And as you can see in today’s chart, through all stages of the research the number one thing that members want is (drum roll please)… ‘a good return on my money’. Not exactly earth shattering news.
But more interesting is that fees barely rate a mention (#13 on the list). And even then, respondents are concerned that charges are in line with the market average rather than the absolute fee level.
More interesting again is that in this study, members typically failed to connect the impact of fees with net returns. Of course, it’s certainly possible that media attention and advertising campaigns in Australia have made Australian investors more aware of this link than perhaps in the UK.
So what consumers say they want isn’t necessarily being reflected in regulatory actions. That isn’t to say lower fees aren’t in members’ best interests, but it does indicate a narrow approach.
So what’s a regulator to do?
There is some evidence of an evolution in the regulator approach. Take CIPR for example, where super funds are required to compare outcomes (in terms of income flowing to members in retirement) rather than just fees, to determine what’s best for the member. Consider also the FSI’s proposal for product design and distribution obligations to ensure that financial products are targeted at the right people – a recommendation that is set for implementation.
The move away from the myopic focus on fees and costs in favour of a more nuanced view of what matters to members is to be applauded and is in line with what consumers – or UK pension fund members at least – identify as being of value. Consideration of member outcomes takes account of the range of influences that can affect a member’s final position rather than simply pushing toward the lowest-cost solution for all.
Never let it be said that we are advocating for a lesser focus on costs. A lack of consumer awareness of fees – and the impact they have on retirement outcomes – makes it even more important that the regulator and the industry keep them in sharp focus. But we also need to ensure the industry is driving the type of innovation that is required to drag our industry into the 21st century – one that is digitally-capable, responsive to the differences in our member bases and able to offer the right help to members, at the right time in their lives, to give them the best chance of a thriving retirement. That, in our view, would be great value for money.
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