YFYS does not address retail super funds’ underperformance

The Government’s proposed Your Future Your Super (YFYS) legislation stops short of addressing the underperformance across the superannuation sector, the Australian Institute of Superannuation Trustees (AIST) believes.

AIST pointed to data from the Australian Prudential Regulation Authority (APRA) released this week that found over the five years to December 2020, profit-to-member super funds, on average, outperformed retail funds by 23%.

AIST chief executive, Eva Scheerlinck, said this concentrated retail fund underperformance needed to be urgently addressed by the government and regulator.

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She said the YFYS legislation stopped short of this as it only prescribed the annual performance test to default MySuper products, which on average tended to perform better.

“A one or two percentage differential in annual investment returns has a huge impact on the financial outcome for members in retirement,” Scheerlinck said.

“It should be legislated that every super product is subject to annual performance testing. Any exclusion simply lets underperforming funds escape scrutiny and eats away at member returns.”

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AIST is simply a strident mouthpiece for the self interests of the deceitful and staggeringly blatantly corrupt and greedy union and industry funds.

Instances like Aust Super having an 'independent' valuation of a Mexican toll road inflated to over three times what it is valued at on the actual Mexican stock exchange is one example of how their 'performance' figures are fraudulent and should carry no weight.

Give alternative valuations then to confirm your argument.

Red Flagger Richard Hedware, knew you'd pop up to AIST's and union super's defence.

You must've been living under a rock of late, or more probably pushed your head in the sand once the parliamentary enquiry into super began as your old mates in union super are actually being properly questioned for a change.

Was less than a month ago that the particularly questionable character David Whiteley had to field questions: "IFM valued its investment in Aleatica Mexico at around $3.79 AUD per share, when those same shares were listed in Mexico’s stock exchange at a quoted price of around $1.52 AUD per share" as per article here on MM 11 Feb. And as usual he prevaricated and obfuscated around the questions and produced his normal alternate universe answers, in much the same way he did during media releases when he headed up that other icky union infested self-interest institution, ISA.

Oh yes, the 'independent' report that they paid big bucks to get the answers they wanted, really isn't worth much when market forces are at work. Then again, maybe we all should just tell our clients that their portfolios weren't actually down last March as the underlying share values didn't reflect the NTA of the companies nor their balance sheets, and give them our own set of figures rather than what the market says... seems to work for your pets, the union super funds.

Thank you, well said!

Wow Hedware - MIA for ages and them bang, jumps outs of the dark to defend Industry Super. You are amazing - and I hope well paid.
Tell me Hedware, if an assets can be purchased on the open market for lets say $1.00, why would Industry Super say it is worth more - I for one certainly would not be buying the assets from Industry Super (as I am not a member)?

When are we going to get serious about this misleading information that's constantly out in the public arena to do with performance comparisons. How is it possible that we're going to have a legislated performance table showing which funds have performed best without a legislated method of determining the level of risk within a funds' default option. What's the point of comparing Hostplus's default balanced option with 93% growth assets, to Australian Super's with 80% growth assets and Vanguard's with 50% growth assets?

That's not the only problem with it though, the performance figures reported by any super fund that has a fixed dollar account keeping / member fee don't net those fees out. So Australian Super for example reports their return but doesn't deduct the $117 member fee, for small balances that would have a meaningful impact on the return figure. A huge percentage of Australian Super members are small balances.

What about the method being using to report returns i.e. time-weighted vs money- weighted. Industry Funds do not have the technology to report the actual return that an individual member receives. They state a return figure on the annual statement that is meaningless because it doesn't take into account the timing of their super contributions or switches they make between options. As an example of what this means - if a member switched from Balanced to Cash during the Covid crash last year and then decided a couple of months later that was a bad idea and switched back, they would receive an annual statement that tells them they received x% return (whatever the balanced option return was) because they finished the year invested in the Balanced option, when in reality their return could be as bad as -15% to -20%.

Clients of Financial Advisers get reports that are money-weighted, meaning they take into account the purchase price of every unit and the timing of those purchases, and they're net of fees i.e. they can tell a client what they actually received, not some arbitrary number that means nothing.

When are they going to address all of this? you would hope before they bring in new legislation.

If you're referring to the YSYF comparison, it takes into account the asset allocation of each fund so AustralianSuper, Hostplus and Vanguard won't have the same 'benchmark' to outperform. This issue is that they are using self disclosed SAA from each fund. Each fund's view of SAA is different, some don't change it for years, others change it every year. The other problem with this is now it effectively just measures how much their active managers outperform and removed the biggest driver of returns which is the SAA. Yes, you should try compare like for like options but in terms of which fund is doing a better job for their default members, they should consider the fund that invested more in equities over a long bull run as better than the fund that went conservative and missed out on bumper equity returns. This is all different for choice funds, if people chose to be conservative then that conservative option should be true to label... I've seen some options labeled conservative growth and be 60% growth... and as you say, Hostplus balanced being 90% growth. I'm happy for Hostplus default to be 90% growth because they have a lot of young disengaged members but it shouldn't be called "Balanced".

If the AIST desires a truly level playing field, they will also call for the $100 million pa in ongoing intra-fund "advice" fees so as to conform with retail advisers, where MySuper Fund members will also provide informed consent and annual renewal forms for the ongoing advice fees being charged from their funds (while paying fees for decades for no service).

APRA's Heat Map is an excellent idea. However, it's implementation is - as usual - faulted.

The Heat Map is based on assumptions that simply do not apply to individuals. The disclaimers say as much, and this shows APRA is aware of the shortfalls. I have a lot of time for APRA's difficultites. They are tasked with operating a fair system - not looking after individual super fund members. The Heat Map idea is supposed to help member-level folk make long term and serious financial decisions. That is supposed to be the role of financial planners, so you can imagine the difficulties of a market regulator in providing member-level advice when they do not hold that expertise.

Here's a test for anyone choosing to comment on these issues - do the homework!

What is the scope of fee differences across the Industry Super members? What is the scope of broad market returns for those super funds? What are the insurance cost differentials?

The Heat Map is going to cause immense difficulties for the general public. Members will make decisions based on faulty logic and data that does not apply to their situation. If you doubt me, just look at the disclaimers and assumptions in the discussion papers and reporting.

I find it very disappointing that after "winning" the great capitalist/labour competition for control of Australia's capital flows, the folk behind Industry Super continue to focus on trying to run Australia's financial system rather than get back to looking after their members. Animal Farm, all over again.

To my mind, this Heat Map palava will just generate more need for personal financial advice. And intrafund advice won't cut it because it's inherently biased. It's a pity there won't be many advisers left to provide that advice.

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