In the coming months investors in our investment models will be receiving some additional correspondence in regards to the underlying investments, benchmarks and target asset allocations.
The funds management industry is going through some reporting changes which will standardise terminology and help make comparisons more meaningful. The industry has been calling for this and we are pleased to see it implemented. We will be providing a covering letter of explanation but if you have any queries please do not hesitate to raise them with your advice team.
Importantly nothing is changing in the underlying AANAM strategies and allocations.
This is a good thing as the active managers in our portfolios have been adding substantial value. The table below provides a comparison between our two central models and their counterparts in QSuper as at 31 August 2021:
| All figures @31 August 2021* | AAN Core | QSuper Balanced | AAN Growth | QSuper Aggressive |
| 1 Year Return | 21.20% | 13.43% | 29.04% | 16.02% |
| 3 Year Compound Return | 11.66% | 7.56% | 14.71% | 8.57% |
| $500,000 invested over 3 years | $696,086 | $622,189 | $754,699 | $639,881 |
| Differential | $73,897 | $114,818 |
*Please note that past performance is not predictor of future performance and all returns disclosed above are net of investment manager fees.
This is not to denigrate QSuper as we recognise them as a good manager and they have provided solid results for their members for many years. Relative to other well-known brands such as Australian Super, CBUS, HostPlus and Hesta, they are a proven performer. This is more to demonstrate how well our models have been performing and provide some perspective.
Lower Model Fees
In addition to this and despite the strong performances they have provided, the AANAM Investment Committee has been busy and has also negotiated additional discounts with several brands within our stable of managers.
As more clients have joined the five practices that support these models, the funds invested have grown and across the six models (we recently added the AAN Sustainable Growth Option), as at 31 August 2021, we have almost $958million within the models.
As you can imagine this does improve our bargaining position and we now have improved rate cards with both Franklin Templeton and Perpetual. 100% of these negotiated fee reductions flow straight through to you, our clients.
Our models were already very price competitive so this just adds to that.
Importantly a discounted rate card does not guarantee any manager their spot. They are selected first and then fees are negotiated.
No Performance Fees
One of our selection criteria when choosing managers is we do not use mangers with Performance fees. Performance fees can be charged if a manager outperforms their benchmarks. These fees would be in addition to the funds management fees they already charge.
This can be common practice and there is a sound argument for a lower annual fund fee and then a performance fee which incentivises a manager to perform, but these can blow out quickly. If we considered the Bennelong Australian Equity fund as an example, which is used in the AAN Core, Growth and Australian Equity models. Its annual return to 31 August 2021 was 40.82% against a benchmark of 28.58% (The ASX300 Accumulation Index). Performance fees can be 20% or more of the outperformance so instead of the fee we pay (we have negotiated a substantial discount), it could be as much as 20% of the 12.23% outperformance – an additional 2.45%. Non AAN clients could easily be paying up to 3.4% as an Investment Management Fee while AAN clients are paying less than 20% of that.
The AAN Core model fee including all underlying fees is 0.86%. You can see how easily performance fees can ramp up these costs. The Bennelong Australian Equity fund is only 10% of the AAN Core but performance fees on this one option would have pushed the total model fee up to 1.11% if we had not negotiated performance fees out of our contracts.
There is nothing wrong with paying for performance but if you can avoid it, then that is more money in your pocket. The Australian Financial Review published the financial year 20-21 costs of performance fees in their weekend Friday edition (10Th Sep 2021) AFR: Fundies Fee Bonanza These did not apply to our clients.
Reduced Administration Fees:
The final piece of good news is that the Praemium platform which administrates the investments for a large percentage of our clients, has also improved on our existing very sharp rate card and all our clients from 1 September 2021, have had their administration fees reduced.
This is in recognition of over $1billion of funds being held within the Praemium platform (this includes the AAN models and other client investments). The rates were already low and we believe across all AAN clients this will reduce administration costs by an additional $145,000. For each client account it varies based on the balance but it should translate to a saving of between 8-9% on the administration fees.
The last 18 months has had its share of unpleasant shocks so we are pleased to be able to share all this good news with you. You can be assured our team is working in the background to deliver positives wherever we can.
The investment markets can change quickly and as we all know, past performance is no predictor of future performance. Something we can manage is reducing unnecessary costs and that is risk free performance no matter what happens in the markets.
The AANAM team continues to deliver and as we continue to grow we will continue to pass 100% of of any fee reductions we can negotiate to your accounts and yes, we will stay focused on providing the best (risk adjusted) performance results we can. Our growth has been very dependent on the family, friends and colleagues that our clients have introduced to the various businesses around Australia and theses discounts are a direct result of that mutual success.
