(August 15, 2012) — Does governance structure influence pension fund fees and costs?

Better governance practices may not actually yield benefits to fund members, an academic paper on Australian pension funds, known as superannuation funds, has asserted. Surprisingly, good governance practices in terms of larger, more independent and diversified boards and the presence of specialized board committees result in higher agency costs, according to the authors.

The paper concludes: “Looking at the trustee boards and committee structures of Australian not-for-profit pension funds, we find correlations between funds’ internal governance structures and their level of fees and costs.”

More specifically, the authors — Monica Tan and Marie-Anne Cam of Melbourne-based RMIT University — find that larger boards are linked to higher investment management fees and expenses, operating expenses and trustee fees. As a fund’s board size increases, for example, so do the number of asset consultants being hired. “In addition, we find a positive relationship between the proportion of independent trustees and investment management fees and expenses, and operating expenses,” the paper noted.

The paper comes on the heels of a previous research report — written by the same authors of RMIT University — which asserted that while a fund’s governance practices do not affect performance, they do affect fees.