Serial ‘fat cat’ offenders: The super funds repeatedly letting down savers

You’ve heard it so many times – the fees charged on your superannuation fund can make a surprisingly big difference to the returns you receive over the longer term – but seeing it in real money terms sure helps drive the message home. That’s where the annual Stockspot Fat Cat Funds Report comes in, and you could be doing your young family members a real service by showing them its findings.

Online investment adviser Stockspot.com.au looks at the performance of super funds after fees to report on which funds are ‘fat cats’ with a toxic mix of high fees, complex products and poor investment performance over five years and which are ‘fit cats’ with low fees, straightforward products and strong performance over the same period.

And when it comes to that toxic mix, some Australian fund providers are serial offenders, with multiple individual investment options turning in a fat cat result year after year – at a huge cost to Aussie workers, especially those just starting out in the workforce. How much, exactly? Stockspot calculates that the 40 fat cats on its list drain their members of $117 million in fees in total every single year, all the while turning in sub-par investment performances.

Stockspot CEO Chris Brycki says, though, that many people are reticent to move their super from a fat cat fund, preferring to turn a blind eye to what they may see a problem that’s way off in the future, than take the 10 minutes it requires to switch funds and save serious cash, to the tune of $200,000 reaped from better investment returns and lower fees, over their working life.

“Sadly, in the eight years of naming the worst-performing fat cat funds, few people have moved out of these funds,” he says. “Retirement may seem a while away but when you get there and realise you could’ve been $200,000 richer, it won’t be a good feeling.”

Brycki points out that high fees aren’t just a problem for the young, either. “Fees are also an important consideration for those approaching retirement,” he says. “As you reach retirement, your portfolio generally becomes more conservative. Fees take an even larger slice of your returns in a moderate or conservative super fund.”

So which fund providers are the serial fat cat offenders? AMP, the under-firm financial group, tops the list, according to Stockspot, with 12 fat cat super funds under its control. OnePath, which ANZ sold to IOOF in January 2020, is second with 11 fat cat funds and Macquarie is third with five.

Stockspot singles AMP out for particular opprobrium, noting that it had been on the fat cat list for the entire eight years the report has been running, and that it had the dubious honour of being the first fat cat fund to achieve a negative return over five years, with one AMP super fund delivering a -2.2 per cent return over that period.

Fit cat funds, on the other hand, have outperformed the fat cats by 22 per cent over the past five years, in no small part because they charge members on average less than 1 per cent of funds investment in fees every year, compared to the 2 per cent on average charged by the fat cats.

Industry super funds Unisuper and Australian were in first and third spots on the fit cat list, with seven and four fit cat funds respectively, while IOOF was in second place with five fit cat funds.

Stockspot breaks the performance results down for each of the popular investment options. For balanced funds (AND for aggressive growth, growth and moderate options), AMP was the biggest fat cat, with its AMP Capital Dynamic Markets Fund being the fund that achieved the the negative -2.2 per cent return over five years. That balanced fund uses dynamic asset allocation – basically, the fund manager uses research and analysis to change the fund’s asset mix in response to market conditions – with the aim of achieving better returns for investors but Brycki was pretty scathing when he spoke to the Australian Financial Review about Stockspot’s findings.

“The performance of this dynamic asset allocation fund puts to rest the idea that chief economists have any edge in timing markets or asset classes,” he told the newspaper. “Super members would’ve been much better off ignoring AMP’s economic views and simply investing into an index fund.”

AMP, meanwhile, told the AFR that it “recognised the need to strengthen investment performance”.

The fittest cat of the balanced funds was the WA Local Government’s Sustainable Future fund, with a 6.9 per cent return over five years, while Hesta’s Eco Pool fund topped the growth category, Prime Super’s Alternatives the aggressive growth category and Maquarie Life’s Capital Stable the moderate category.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.