Super funds' perpetual push for low fees has overwhelmingly influenced the Financial System Inquiry's recommendations for the industry, which instead should have been focused on be tackling underperformance.
Such is the view of Blue Sky Funds' private equity director, Alex McNab, who said the last three years have been pervaded by a low fee competitive environment, largely driven by industry super funds.
He said the low fee mentality often comes at the cost of performance.
"It seems big super funds in Australia prefer to underperform as long as their MER is low, as opposed to paying a higher fee and making money," he said.
"While fees are an important contributor to overall portfolio returns (which should be the objective for most investors, after all), low fees are just one element in the long-term performance of a super account."
He said while most of the portfolio should look at low fee options, a smaller part should be geared towards alpha and higher fees in order to maximise returns.
"The industry needs to stop seeing fees as the be all and end all," he said.
"By focusing on overall fees, investors risk paying too much for some exposures (beta), not enough for others (alpha) and not allocating enough to the asset classes that can deliver real outperformance.
"This seems like a pathway to mediocrity."
