Memo ASIC: It ain’t illegal to underperform

Memo: Australian Securities and Investments Commission (ASIC) deputy chair and erstwhile deputy chair of the Productivity Commission (PC), Karen Chester.

It is not actually a breach of the law for a superannuation fund to under-perform over a one, three or five-year period. Bloody annoying and disappointing for members, of course, but not illegal.

And it is drawing an extremely long legal bow to suggest, as you apparently did at a recent Sydney forum, that just because a fund has under-performed, the trustees have failed to act “efficiently, honestly and fairly”. By what measure? According to what benchmark?

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Nor, Ms Chester, is it unusual for a superannuation fund to be an investment performance cellar-dweller and then become part of the Top-10 performing funds. It is, as you should know, a product of asset allocations and how well they fit the prevailing market cycle.

If you want proof of this Ms Chester, perhaps you ought to look at the performance record of MTAA Super which, controversially, went from the top of the performance tables before the Global Financial Crisis only to fight its way back up the league tables in more recent times.

Any examination of the Top 10 defaults model you proposed as PC deputy chair would tell you that the list would change depending on allocations and the state of the market – something which keeps investment analysts busy and off the streets.

Thus, it is all very well for ASIC to keep promoting its chest-beating “why not litigate” approach, but to mount a prosecution you must first observe a breach of the law and that is going to prove challenging where no such specific law exists and, frankly, is most unlikely to exist.

What is more, Ms Chester, just as a matter of convention, regulators do not make policy or draft legislation – that it the prerogative of the Government of the day via the Parliament.

And just by the way, the approach of the Australian Prudential Regulation Authority (APRA) to dealing with under-performing funds and putting members first is already proving far more measured and effective in terms of ensuring underperforming funds either merge in the best interests of their members or exit the industry.

Indeed, it might be noted that the approach of APRA in dealing with under-performing funds is most unlikely to take up the time of the courts or to weigh unduly on taxpayers.

Few people in the superannuation or broader financial services industry would argue with the need for persistently under-performing superannuation funds to exit the industry, but to suggest that “close to 100” will be compelled to head for the exit in the next five years needs to be backed up by facts – By what measure? According to what benchmark?

Frankly, the time for post-Royal Commission chest-beating by our financial services regulators has passed. ASIC and APRA need to get on with doing their jobs. 

Mike Taylor

Managing Editor


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