Stockspot’s annual Fat Cat Funds Report has found there is over $45 billion stuck in what it deems ‘Fat Cat Funds’. The company looked at a record 4,102 funds to assess how they have performed after fees since 2012. For the past 5 years, Stockspot has been campaigning to raise awareness of the impact of Fat Cat Fund fees on everyday Australians.
The report reveals the super funds that charge high fees and deliver low returns and, unsurprisingly, bank funds are the biggest culprits. Two thirds of all fat cat funds are managed by the Big Four banks.
$45 billion still stuck in Fat Cat Funds
The report found that $45 billion is currently managed by Fat Cat Funds and $600 million was paid in fees to these funds in the last 12 months.
To be classified as a Fat Cat Fund a super fund needs to perform worse than its category average over 1 year and 3 years and 5 years and by more than 10% over that period. The research found that 217 Fat Cat Funds of 2015 are still Fat Cat Funds in 2017 and there are billions trapped in them today.
By far the big banks continue to control the most Fat Cat Funds. ANZ (including OnePath) took out the Gold award for the 4th year running with 218 Fat Cat Funds which together charged its customers $114 million in fees. It was followed by AMP with 87 funds and Commonwealth Bank with 47 funds.
Fat Cat Funds and your superannuation
On average, millennials could pay over $300,000 in fees if their super is in a Fat Cat Fund. This is over a quarter of their potential super balance leaving them with $846,957 by retirement age. In contrast, they could have over $1,178,081 by retirement if they were in a low fee super fund.
People born between 1946 and 1980 could lose over $100,000 in fees to their super provider.
In the past 5 years, Fat Cat Funds with a cautious investment strategy lost members 49% of returns due to fees. This is likely to have affected people closer to retirement (the generation known as baby boomers) who tend to have a more conservative super investment strategy that generate returns of around 3 to 4% per year.
Fat Cat Funds falling…
The good news is that naming and shaming the worst offenders is making a difference with the number of Fat Cat Funds beginning to fall. There has been a 18% decrease in the number of Fat Cat Funds from 638 in 2016 to 521 in 2017, with some Fat Cat Funds closing and others reducing their fees.
Total fees paid to Fat Cat Funds fell to $600 million in 2017, with the average fee charged by Fat Cat Funds falling slightly to 1.99% from 2.04% last year.
It also notes that NAB/MLC fell out of the top 5 in the Fat Cat Awards, with its number of Fat Cat Funds dropping from 32 in 2016 to 11 this year.
There are, of course, funds that have done well, known as Fit Cats. With Platinum Asset Management, Legg Mason Asset Management and Ausbil Investment Management taking out the top spot.
An important message
Super is the single-most important savings tool you will have in your life-time and how much you pay for it matters. Every dollar you can save in super fees is an extra dollar you will have to spend in retirement.
In some parts of life, paying more gives you more. Investing doesn’t work that way. Every dollar you pay comes directly out of your retirement lifestyle. The message is clear: the more you pay, the less you get.
To find out if your or your clients super is in a Fat Cat Fund visit www.stockspot.com.au/fatcat
Lauren Franze | Stockspot
UPCOMING EVENT – STIRLING MORTLOCK – WED 29TH NOVEMBER 2017
(HOSTED BY STOCKSPOT)
Join Stirling to hear the highlights from his sporting career spanning over 15 years and his decision to transition into finance.
Stirling will discuss how he’s applied the strategies from professional sports, elite coaching and mentoring to his approach in money management and how he invests.
Date: Wednesday 29 November at 5:30pm
Time: Arrive 5.30 for networking drinks and canapes
Where: EY, Level 34, 200 George Street, Sydney, 2000