Royal and Productivity Commissions:

Some ‘rough justice’ needed?

It’s been a busy time for super funds with the Hayne Royal Commission putting forward 76 recommendations based on the evidence provided to them.

Some key recommendations such as a ban on ‘hawking’ super products, prohibition of deduction of advice fees for MySuper products, a ban for grandfathered commissions to financial planners and a ban for super trustees from ‘treating’ employers with special ‘gifts’ to have their fund nominated as a default fund have been identified.

And these findings come right after more findings delivered by the Productivity Commission!

Industry funds generally welcome these recommendations and others which were basically aimed at retail, or bank owned, funds. In fact as a direct result of the scathing reports on some of the unethical practices used by the for profit retail funds, industry funds are now experiencing a growth spurt fuelled by members who thought they were in good hands prior the negative publicity.

“The retail segment delivered returns below benchmarks and significantly below the not-for-profit segment,” the report says. And of course this was the Royal Commission we did not need to have according to the government which voted 26 times against it!

Under performing funds

ACTU Assistant Secretary Scott Connolly stated: “The link between employers, unions workers and their funds has been a key reason why industry super funds have systematically outperformed bank owned super funds, and (have been) a pillar of the success of our retirement system.” However, consistently underperforming funds and the duplication of millions of member accounts remain serious systemic problems for the superannuation industry.

A number of consistently underperforming funds which have produced below benchmark returns year after year for their unfortunate members have been identified by APRA and this begs the question as to why these funds should be allowed to operate at all.

Underperforming funds by and large were identified in the retail sector and were frequently attached to employers who would automatically sign up new employees to the dud fund. However, some underperforming funds were also identified in the not-for-profit sector!

Commissioner Hayne has been highly critical of the regulators, ASIC and APRA, and called for stronger regulation of the financial sector. New laws are to fight misconduct and a large-scale investigation into the conduct of banks and their related entities were recommended. The behind closed doors approach to regulation has obviously not been successful and the report recommended direct enforcement powers by the regulators.

And a key question remains: are the trustees of underperforming funds putting their members’ best interest first? Or are they perhaps putting their own best interest first? As compulsory superannuation is a government mandated system, is it fair that company profits occupy a space? Or should the regulators be given sufficient powers to force long standing underperforming funds to close shop and transfer their members to a better performing fund? The retirement outcomes of millions of superannuation fund members are at risk here.

Should the ‘right to remain’ test be applied to underperforming funds and should the ‘elevated outcomes test’ be the measure for allowing super funds to operate?

The Productivity Commission’s proposals summed up the situation for underperforming funds nicely. “While there may be an element of ‘rough justice’ for funds, this is unambiguously preferable to the ‘rough justice’ the system has frequently meted out to millions of members – whose interests trustees are required by law to prioritise”.

If you would like to see how your fund is placed in relation to the field of superannuation providers, Mr Google can be of assistance under ‘underperforming funds’ or ‘super performance tables’.

Bernard O'Connor
NGS Super
(Important information: The information in this article is general information only and does not take into account your objectives, financial situation or needs. Before making a financial decision, please assess the appropriateness of the information to your individual circumstances, read the Produce Disclosure Statement for any product you may be thinking of acquiring and consider seeking personal advice. Past performance is not a reliable indicator of future performance. Any opinions are those of the author and do not necessarily reflect the view of NGS Super.)