Westpac’s BT Financial Group to take up to $70m hit from cut to super fees

After axing trailing commissions, BT Financial is now cutting super fees just as the bank inquiry turns its focus to the sector.

BT Financial chief Brad Cooper. (David Moir/The Australian)

Westpac’s wholly-owned superannuation business BT Financial Group will take a hit to its profits of up to $70 million as it looks to cut fees it charges for managing member retirement savings.

As the banking royal commission gears up to hold an explosive fortnight of hearings into the $2.6 trillion superannuation sector, BT Financial said it would be introducing a new cut-price 0.15 per cent asset administration fee for customers invested through the BT Panorama Investments and BT Panorama Super, along with a flat account fee of $540 a year.

The move comes after BT Financial Advice group recently caught the market off-guard with a decision to scrap all “grandfathered” payments on its products, including notorious trailing commissions that most people thought had been dropped when the FOFA (Future of Financial Advice) reforms were introduced. That overhaul is expected to wipe $40m a year off BT’s bottom line.

Westpac is the only major bank to remain committed to its wealth management businesses, after ANZ, National Australia Bank and Commonwealth Bank have all made moves to exit the scandal-prone super, financial planning and insurance sectors.

BT Financial chief executive Brad Cooper said the change would tackle the “complexity” currently faced by investors and advisers to determine the level of fees being charged on platforms. “There’s all sorts of tiering and different people charging different asset based fees versus admin based fees and so on,” Mr Cooper said. “We’ve come out with a simple transparent price for everybody.”

However, the new pricing structure is only automatic for new customers. Old and current customers have been asked to gain approval from an adviser to make the switch, or remain in the current pricing model.

According to an average member with $400,000 in savings, the overhaul will reduce annual fees from around $2,300 to $1,350.

If the new structure was taken up across the board, it would cost BT Financial up to $70m in foregone revenue.

BT also said it would launch a new no-frills option, with flat fees of $180 a year and a 0.15 per cent administration fee.

The major wealth managers, AMP and the Big Four banks, are preparing for a gruelling royal commission hearing into their superannuation divisions ahead of the fifth round of hearings that begin next month. The royal commission in the past few weeks has probed AMP and the major banks on fees being charged to super members where no service has been given, the performance — or entrenched underperformance — of investment platforms, the retail sector’s tardy approach to the legally required MySuper transition to low-fee funds, and high fees being charged for low returns.

The Productivity Commission’s landmark inquiry on the superannuation system, which recently released a draft report, has been informing much of Mr Hayne’s inquiry. The damning report into superannuation found entrenched overcharging and underperformance in the for-profit fund sector.

BT Financial Group has about 20,000 customers on its Panorama investment platform, with about $11bn in funds under management. BT has been targeting self-managed super fund owners in a bid to grow its market share.

Mr Cooper said in a world where more financial advisers were independent, rather than working under one of the major institutions, the company needed to compete to win funds.

“If you want to compete in this space you need contemporary offers and contemporary pricing if you want to be a significant player going forward,” he said.

According to the Productivity Commission, the proposed “best-in-show” list of 10 or so top performing super funds will be integrated into the corporate watchdog’s policing on the scandal-ridden financial ­advice sector, limiting the ability for vertically integrated wealth companies to cross-sell under­performing funds to customers.