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Super fund execs ready themselves for commission roasting

Andrew Main
Wednesday, August 01, 2018

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Stand by for appearances from a string of Superannuation fund executives at the Banking Royal Commission, starting again in Melbourne on Monday of next week.

It’s always hard to work out in advance how much of a roasting they are going to get, if any, thanks to the devilish cunning “pincer action” tactics that the Commission has used in lining them up.

You may remember the Commission sent out letters to the institutions early on asking for a list of their sins, spiced up by clear indications that the relevant regulator probably knew what those sins were already.

That will have focussed a lot of minds and in the spirit of being even handed about the Superannuation industry in Australia, the Commission has invited representatives of seven retail funds and seven industry funds to discuss how they perceive their duties to be towards their account holders. Some may even have volunteered.

We should see heavies such as Ian Silk from the $140 billion Aussie Super, former Queensland State Treasurer Andrew Fraser from Sunsuper and former Victorian Premier Steve Bracks from CBus taking the stand on the Industry side.

Compared with some of the bright young things on the retail side, you would have to say that’s a lot of artillery. The retail crew’s likely comparative youth reminds me of the quote from veteran US Democrat Sam Rayburn on contemplating Lyndon Johnson’s first cabinet meeting under John F Kennedy.

“Well Lyndon, you may be right and they may be every bit as intelligent as you say, but I’d feel a whole lot better about them if just one of them had run for sheriff once.”

On the Industry side we will see Australian Super, Catholic Super, Queensland Electricity Supply Industry Superannuation, Sunsuper and QSuper, while in the retail area we will hear from AMP and National Mutual Super, IOOF, Mercer, MLC/NAB, OnePath and Oasis (ANZ), and Suncorp.

The industry fund crowd may get a bit of heat if there’s any serious evidence of  movement of money between industry funds and unions, as suspected by a lot of people in the Coalition.

Further, there was recently a court case relating to a possible conflict of interest issue at HostPlus and Aussie Super, because of their joint involvement in a downstream investment called the Industry Superannuation Property Trust. That may turn out to be a misconstruction but it’s definitely something to think about if funds A and B are directing their members’ investment towards third party C that they’re involved in. It might all be a good idea but it doesn’t always look good.

That list of potential topics doesn’t sound quite as sexy as some of the stuff we heard about the banks and AMP, but be assured Royal Commissions have a habit of disguising the iron hand with a velvet glove, at least in terms of telling us ghouls which topics will be covered.

 There will be a one-off appearance by QSuper to discuss how super funds interact with Aboriginal and Torres Strait islanders. Again, no villainy is being spoken of but QSuper is the sole provider of super to a lot of indigenous people on work programs in that state, and there are all sorts of extra complications in remote communities over who’s related to whom, when they were born, and what constitutes “dependents” when someone dies and there’s a life insurance payout looking for a home.

By way of a grand finale we’ll have appearances from the two regulators, APRA and ASIC, to discuss their effectiveness.

That may well be very interesting, particularly as the regulators will be following the parade and we know which implements and cargoes that involves. I understand that some people at APRA may find themselves looking at the underside of the bus, if it turns out they haven’t been doing their prudential supervisory job in super as well as they have in the banking space. Certainly, the number of people and organisations that have recently taken a swipe at APRA including Productivity Commission chair Karen Chester, ASIC and Minister Kelly O’Dwyer, suggests that something is up.

There’s an excellent one line summary of the superannuation industry that was provided by Jeremy Cooper, who published a not very kind review of Super in 2011. As he put it in an aside at the time, “there are a lot of mouths to feed in superannuation.”

That’s the underlying point: are the providers really looking after the interests of the superannuants? While I’m not suggesting for a moment that all the funds appearing at the Commission are villains, we are likely to be showered with examples where they weren’t.

I’ll stick my neck out here and say I don’t think the Government is going to get a lot of traction in its campaign against the unions’ involvement in super, which has long jarred with Coalition hardheads despite the fact that you could argue super in Australia was pretty much an invention of the unions on behalf of their members.

The industry funds have the wind in their sails at the moment in the wake of the Productivity Commission report which concluded that Industry Funds have a reliably better performance record than retail funds. Consultancy Chant West  says that over the past year, Industry Funds returned 10.3 % on average, against 9 % for retail funds. Meanwhile over the past 15 years, industry funds have averaged 8.1 % a year against the retail sector’s 7.2 %.

Published: Wednesday, August 01, 2018

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