With about 75% of superannuation members’ money either in merger discussions or mergers taking place, funds need to make sure investment has to be “front and centre”, according to asset consulting firm Frontier.
David Carruthers, Frontier head of member solutions, said that implication showed why members’ best interest was crucial.
“We know that mergers are time consuming and can be distracting, so we need to be thinking is this the best thing for members,” Carruthers said.
“Funds really have that simple question to answer. To answer that, investment has to be front and centre in each of these merger discussions. It’s not something that takes a backseat where it can be sorted out down the track.”
Carruthers pointed to comments made by Helen Rowell, the deputy chair for the Australian Prudential Regulation Authority (APRA), regarding the minimum size a superannuation fund should be.
“There are too many super funds, so says our regulator – and our regulator has been saying that for years,” Carruthers said.
“Helen Rowell come out and said $30 billion is the minimum number; you’re not competitive if you don’t have $30 billion in assets.
“Now whether we believe that or not, we currently have 137 APRA-regulated funds, 20 of those funds have more than $30 billion currently.
“Does that mean we’re going to lose 117 funds? If so, how are those funds going to merge?
“I say 137, but that’s forgetting the almost 1,600 funds which are small APRA-regulated funds with less than four members, as well as almost 600,000 self-managed super funds – I don’t think any of those have more than $30 billion.”
Carruthers also raised the notion that the argument of fees might not be the strongest argument for members’ best interest.
“We see a lot of funds say during or after a merger that members are better off because they’re saving extra money on fees [that] the combined entity is much cheaper and therefore in members best interest,” Carruthers said.
“That’s a good outcome for members, but there is a small grouping of fees saving $100 or $50 is good if it doesn’t hinder investment performance, but in and of itself an extra $50 per annum over your lifetime is probably not going to your retirement outcome.
“Might be in members’ best interested but not going to change the dial that much.”