It’s the one product nearly every Australian has to own by law, so it’s time to start talking about how we pay for superannuation.
‘Transparency’ has become a hot topic in financial services since the EU’s Markets in Financial Instruments Directive (MiFID II), ASIC’s RG97 reforms and, of course, the Royal Commission. But what is it? Can we distinguish between compliant disclosure and ‘true transparency’?
Allan Gray recently partnered with OneVue to launch a new private label, Allan Gray Superannuation, Investments and Retirement Solutions, aimed at addressing this very issue. Speaking with No More Practice Education, Allan Gray chief operating officer JD de Lange equated disclosure with “sending you a 56-page PDS which contains everything you can know about a product, and telling you to read it yourself to figure out what you’re buying.”
Pricing parity
Transparency, by contrast, is about two things: “giving you a tool which shows the different administration fees, so you can see how the decisions you make affect the fees you pay. Secondly, guaranteeing to you that anyone who buys the same product will get it at the same price. Making sure all clients are treated equally.”
To ensure this, de Lange continued, “you break the product down to its basic numbers, so that the client can see what’s in there. It’s a complicated product, super – there’s many layers. But ultimately clients need to be sure that if they’re buying a Corolla, they all get the same car. You can have extra bells and whistles, but the core product is the same.”
It’s worth noting that taking this approach to transparency isn’t a trivial endeavour, and involves overcoming several legacy issues facing financial services.
“The big issue,” de Lange explained, “is that newer clients tend to pay less than older ones as the product improves and the price comes down, or there are deals offered for bringing in new business. Then you have special deals for large dealer groups. Everyone ends up paying a different price for the same product. Overcoming that involves getting rid of a fairly big legacy book and repricing all your clients.”
Peeling the onion
The other thing to address, though, is how clients look at fees and disclosure.
“These products have layers,” de Lange said. “There’s no way around that. It’s like peeling an onion, and the ideal is that each layer you peel off you still get something you expected. But that’s not currently happening. It’s an education process.
“People will ask, ‘What’s your fee?’ and we have to say, ‘There’s no single fee. There’s this list of fees, and yes, if you add them up you get to one fee, but these are all the fees you need to make a true comparison between products.’
“You might pay more or less, depending on the product, but at least you’ve been given the information to make a decision. And that’s much easier, and more transparent, than going through a PDS to figure out what those costs really are.”
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