Industry funds call for action on underperforming defaults

Industry superannuation funds have claimed a Productivity Commission (PC) report on investment performance suggests almost every dollar in a retail superannuation fund would be better off in a high-performing, low-cost not-for-profit fund.

The Australian Institute of Superannuation Trustees has pointed to the PC’s findings and called on the Government and regulators to act on underperforming funds.

AIST chief executive, Eva Scheerlinck said that while the PC report had found that Australia’s super system, on average, achieves comparable returns to other countries with most asset classes, its key finding had been that at least three million Australians were in underperforming super funds.

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Further she said the report had identified almost all the underperforming funds as being retail (bank or insurance-owned) super funds.

“The findings of the report point to almost every dollar in retail super being better off in a high-performing, low-cost not-for-profit super fund,” Scheerlinck said. “There is no place for underperforming super funds in our default super system. We need the regulators to act on this.”

According to the AIST, the report found that not-for-profit funds (on average) reported significantly higher net returns and lower average costs than retail funds in most major asset classes and that smart investment decisions as well as other ‘governance efficacy’ played a role in this outperformance.

“Importantly, the Commission’s analysis of performance by asset class puts to bed the argument that the outperformance of our sector can be simply explained by differences in asset allocation,” Scheerlinck said. “It suggests that not-for-profit funds are making smarter choices of assets within asset classes and that there is a correlation between outperformance and good governance.”

She said the report had also noted that while retail funds were much more likely to use related parties for investment than not-for-profit funds, too few of these funds had provided data to the Commission to allow it to draw firm conclusions.

“The Australian Prudential Regulation Authority (APRA) should investigate related party arrangements in the retail sector, which are impacting members’ retirement savings,” Scheerlinck said. “In the words of Michael Hodge QC, we need to investigate ‘what happens when we leave trustees alone in the dark with our money’.”

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I don’t need Labor telling me I’ve got to set up a SMSF or transfer it to one of their industry super funds. Next Labor will be telling us which bank we must use, which cars to buy, which bread to eat, which health fund to use, which school to send kids to. Someone needs to remind Labor & the Unions that these super funds belong to the members, not them, and the members will decide where it will go.

Except that the Industry Funds are usually the high performers !!

MTAA Super Fund Best performing fund to the worst guess - The MTAA My AutoSuper Balanced Fund, run for the Motor Trades Association of Australia, clocked the worst performance with an average annual return of 3 per cent – well down on the median return of 5.2 per cent.

APRIL 27, 2017 The MTAA My AutoSuper Balanced Fund, run for the Motor Trades Association of Australia, clocked the worst performance with an average annual return of 3 per cent – well down on the median return of 5.2 per cent.

The $10 billion MTAA fund, one of the biggest in the country, was one of the best performing fund before the global financial crisis hit and it lost more than $500 million. Following an investigation by the prudential regulator APRA, the fund overhauled its board of directors and appointed two new independent members and changed its investment strategy. MTAA later became the top performing super fund in 2015.

MTAA chief executive, Leeanne Turner admitted that members who has been with the fund for the past decade are still suffering financially compared to other funds.

Not all asset classes are the same even though they may be branded as such, in the same way that not all "Balanced Funds" are the same when you analyse the breakdown of Growth/Defensive assets held.
Typical of Industry Funds/ISA/AIST to come out and gush how good their performance has been with their overweight Growth allocations (when markets have been very supportive of this heavily overweight allocation).
Let us closely analyse their so called "outperformance" on the back of market corrections we are now experiencing, and let us see how expert their Trustees/Asset Consultants are in determining stock selections within asset classes (maybe they do have the proverbial "Crystal Ball" or the Lucky Monkey throwing the darts at the stock selection Dartboard to guide them to superior performance).
Note also that some independant analysis/research conducted has already highlighted some of the flaws in the data that was presented to the Productivity Commission. If Industry Funds are so damn good, why is it that they continually bleat in the Public arena how hard done they are, because they don't get 100% mandates for all SG Employer contributions. If they are so damn good then clients would be beating their doors down for their services, notwithstanding the fact that they have had a leg up for the past 20+ years on the back of the flawed Awards system and guaranteed revenue flows. Enough said.

What did the report find? "the report had identified almost all the underperforming funds as being retail (bank or insurance-owned) super funds." Maybe these underperforming funds are the ones that are unbalanced.
Industry funds must share a lucky dartboard or maybe have better asset pickers, less overpaid managers, and lower fees.
So all that the lobbying the retail funds do is not to gain a monopoly? Dwyer was their stooge.

Helps if the data set is comparing the asset classes correctly first.. also might point out there are a lot of under performing industry funds! Have a read of this which shows how the rating agencies are used to help mask a true comparison

also come really good reads more carve-outs for industry funds being held to a different standard and no ASIC investigations

That pwc report is spot on, this is why I dropped my SR subscription. As a ratings agency using such wide bands of growth assets is just lazy, and to say well that's how they report them to us is also not investigating the underlying asset allocations and actual risk properly.

Doesn't it remind you of the whole GFC issue in the first place the non recourse loans being resold as AAA rated loans to other countries

ISA's great defender Hedware yelling their virtues yet again! You are hilarious and sooooooooo predictable! You do realise no one on here takes you seriously?

ISF have been talking about their outperformance while financial markets have been strong. Now that there is a correction, I wonder if they still want to come out and boast their performance?

Planet Earth to Hedware. Not all professional advisers operate under Bank or Insurance owned Licensees, or have to kowtow to the Vertically Integrated Opaque Models of the Industry Funds and Bank owned platforms. In fact outperformance can and has been achieved over the medium to longer term for clients, by utilising low cost platforms, integrating Global/World class asset managers. This model, overlayed with explicit and fully transparent pricing for Advice, has and will continue to serve my clients very well thank you. Hit a "raw nerve did I Hedware?" Surely there is some appreciation for a non-aligned/non- conflicted quality Advice Model- or maybe not if you continue to hide behind the facade that all Industry Funds are the best and only solution in the Superannuation/Life Insurance landscape. I have yet to come across a client seeking advice from an Industry Fund, where the advice recommends the use of other unrelated Super Funds (even though these may provide better options for the client). Talk about "Conflicts".Time to take the "blinkers " off Hedware.

Hedware’s blinkers are part of his salary package.

I happen to agree with you in that independent professional financial advisors can put together a profitable, sustainable and risk tolerant portfolio of assets. I wonder why those in the bank and insurance owned licences cannot do the same.
Over the years there have been any number of studies by government and non-government organisations doing research and analysis into the comparative performance of retail and non-retail funds and whatever the variables used (ie asset class allocations) the non-retail funds have generally done better than their retail counterparts. High fees is one reason and poor performance is the other.
Who knows who PWC was working for in its latest offerings on the subject - IPA? The Productivity Commission's very recent report is probably more creditable because what the Productivity Commission is. It suggested that 9 out of 10 industry funds were the top performers - that is not a good look for the retail funds.
Personally I would like to see the retail funds lift their game and close the gap.
The usual pavlovian reaction by some here towards industry funds show that it is they wearing the blinkers.

You just don't get it - you are trying hard but out of your depth. Just move to an Industry Fund Hedware and trust the reports you believe have taken into account risk and valuation issues. Just don't be the last out.

What the PWC report isn't looking at so much the funds (they are not hiding anything) more the publishers of the surveys who are not doing much to compare like with like Eg SuperRatings, Longsec,Canstar's etc. The fund use misleading information in marketing "Compare the Pair" which should be comparing growth funds for retail funds against balance funds in industry funds for a like for like when looking at a index fund. Industry funds have done a great job convincing people they are comparing but they are not comparing anything like for like at all. All super funds are fighting for flow of business which gives them flow to then invest and make money for the customers. Industry funds main fight is to keep their iron grip on EPBA agreements from Employers and preferred choice which up until very recently customers didn't have choice which they now have.

PC report that you are referring to is talking about is default funds for Employers as a default option MySuper. This is not comparing every Industry fund and retail investment options for clients wrap accounts have over 400 investment options which in just a balance option I have the choice of 27 balance options for one super fund. Look QSuper or Australian Super they have one balance option but I guess they "Compared the Pair " which is done but a research house which is what planning hammer on about because it is just wrong,

"This is straight from your Productivity Report" which is looking at "mysuper investments" when planners are talking about
The assessment is not an easy one. Data held by regulators contain many gaps and inconsistencies, especially in relation to funds’ investment expenses and related-party relationships. While our surveys were designed to fill some of the gaps, the overall quality of responses to our funds survey was disappointing. Only about half of super funds chose to participate (although notably they represented the overwhelming majority of members and system assets). And of those that did participate, many skipped questions or provided incomplete data (especially on data that matter most to members).

And such was the lack of transparency in the system that a mere five funds out of 208 provided the commission with information on their rates of return across all 14 assets classes, and 71% gave no response on the level of fees for related parties. but I guess they answered all the questions and gaps about retail vs Industry fund without a doubt Hedware.....

Information is key Hedware

You raise some good points. I selected the default funds because they are possibly the most comparable without too much difficulty. It may be a stretch to say that the findings apply to the performance of non-default funds but it is possible to suggest they do give some indication as to relative performance of funds.

As you say information is key and sad that the clients of superannuation industry are denied open and transparent information.
I only have professional and personal interest in retail funds and I know that the fees charged don't reflect value particularly when a comparable index fund does as well as a so-called active managed fund.

Hi Hedware, as a planner I'm not for or against retail or industry funds. I'm against miss leading information used again't a client that are trying to make decisions on investments. Hedware be careful when you say you selected a default fund what you should say is a mysuper, Life stages or life-cycle the key point is that the confusion stems from the start the Government department let the companies call the investment "defaults / MySuper" whatever they want which in turns puts confusion into the market i'll explain below.

Also a funny point is that lots of people that lost money in the 2008 GFC where people in investment they should have not been in moving into retirement lots who have little knowledge do to compulsory SG being introduced in 1992 as the government know they cannot support an ageing population that are now living longer and the old pension system was designed that most would die before they achieved Gov pension. Funny enough both governments will have to start this process of moving the pension age eg 67 now and they are trying to move to 70 I learnt this in Financial planning text books 10 years ago and the government have known this 20 years before that text book was produced. even the Labour government will have to raise the age which is why they never say they will reduce back down to age 65.

When people say default what they are really saying is an investment selected by the employers which was trapped employees an Enterprise Bargaining Agreement (EBA) which consists of a collective industrial agreement between either an employer and a trade union (industry Funds) acting on behalf of employees or an employer and employees acting for themselves. which meant their SG was bound to go to their industry fund and was also closed to people within that occupation or industry. For example if you worked for local government you had LG super which is now offers Choice and now LGIA Super which is now open to anyone. I believe the performance is good for consumers when done on a like for like based on asset classes.

I will point out that even then it is still hard to show a real comparison. For example planners moving clients to defensive positions right now that have asset protect eg sitting in cash so we have money to invest when the market tanks. The real drop in the market another GFC is coming, we then invest hard back into the market for clients to get dividends and share prices at a discount that client a will have very different % return average on the individual account than simply looking at a client holding one position in say a index fund holding that position for 5-10 years with either a industry fund or retail the same issues occur... the compare the pair is just an excellent marketing program to help stop the bleeding Rollovers to other funds that being other Industry funds or retail funds to stops their buying power and also if they don't have flow rollovers in they cannot keep investing infrastructure listed and unlisted which if they I believe the Government or Royal commission turn a blind eye so to speak they need that money for investment.

***Information is Key*** I believe this how financial planners add value managing risk on all fronts insurance/ Super / direct investments/ property / lifestyle/ travel . I personally run clients "goals" I would call them their life hopes and dreams how they picture an ideal world for them" like a business they have a profit and lost if they are self-employed or an employee. Financial planning is more than just selling a product and I think there should be allowances for financial planners to specialize in one service just like accountants do, a accountant working in a corporate company KPMG is very different to an accountant working with mum and dad doing a simple return.

You lost Hedware at "as a planner"....

Face it Richard Hedware, if any reoprt doesn't make ISA appear wonderful you disregard it without even looking at its findings, and yet happily extol the outstanding results of blatantly biased ISA funded reports as if they are accurate factual accounts with no possibility of flaws or paid discrimination. You're as repulsively one eyed and crooked as any of the bank executives who knew their products were flawed but still kept the sales teams on task.

And that's is a really good point about the comments being made here by many people other than Hedware in that criticism of the ISN does not equate to a promotion of the retail industry. It is Hedware that continually conflates the two in a deliberate simplification.

Hedware does not appreciate much outside a neo-marxist narrative.

Using big words now. Please explain.

Hedware you're conflicted and biased and have proven your ignorance by the numerous entries you have made on here

Don't think that is what 'Neo-marxist" means. Zero marks for you.
Now I understand that you are always wrong.

Heddy at least try replying to the right insult, that was the other guy calling you out about your socialist ways, I was lambasting you over your other many flaws

Try using a Thesaurus to distinguish your good self from all the other 'Anonymous' correspondents. Using the generic 'Anonymous' handle shows lack of flair and individuality (Self Improvement 101). Suggest not 'Characterless', 'Unremarkable', 'Nondescript', etc.

Well no one can certainly accuse you of individuality, Comrade.

That was bit embarrassing for you.

Hed you really are thick, isn't the other person's moniker, 100% cynic, enough to let you decipher his statements on your utter ridiculous stance was different to my description of your ineptitude?

Always hard to tell idiots apart.

Except for the one idiot, hefdy, that like an empty bell keeps gonging on nosily with nonsensical jibber jabber and stupidity, drawing attention to himself. Maybe that's your problem, mummy didn't pay you enough attention?

You are self-explanatory to the audience you force yourself upon.

Hedware is discombobulated. Now that is a big word.

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