Australian Superannuation Outsourcing: Fees, Related Parties and Concentrated Markets

Abstract

Utilising a unique dataset collected by the Australian Prudential Regulation Authority (APRA), this paper examines the outsourcing by superannuation fund trustees eight superannuation functions, including administration, asset allocation, and investment management. In each of these individual outsourcing markets, we analyse related-party service providers, the concentration of independent service providers, and the combined impact on outsourcing costs. We find that ‘relatedness’ per se does not imply higher outsourcing fees: Related-party service providers used by not-for-profit funds generally charge no more than independent service providers, whereas retail related-party service providers tend to charge higher fees than their independent counterparts. We also find a wide diversity in competitiveness in the market for each function: Where outsourcing is concentrated among a small number of service providers - even where a large number of providers offer the service - we find that the dominant service providers charge higher fees.