Powered by momentummedia
nestegg logo
Powered by momentummedia
nestegg logo
nestegg logo

Retirement

Super funds under fire from government’s bank inquiry

By Grace Ormsby · November 27 2019
Reading:
egg
egg
egg

Retirement

Super funds under fire from government’s bank inquiry

By Grace Ormsby
November 27 2019
Reading:
egg
egg
egg
House of Representatives

Super funds under fire from government’s bank inquiry

author image
By Grace Ormsby · November 27 2019
Reading:
egg
egg
egg
House of Representatives

Union partnerships, tennis attendance, inactive accounts and implementation of key royal commission reforms have been some of the hot topics launched at super funds in the past week as part of the government inquiry into the banks and financial institutions.

A number of super funds were in the hot seat last week for the first day of superannuation hearings for the House of Representatives standing committee on economics’ inquiry into major banks and other financial institutions.

It saw two retail super funds and four profit-to-member funds take to the stand to give evidence: IOOF, Nulis, AustralianSuper, Rest, QSuper and Hostplus.

A rundown from the Australian Institute of Superannuation Trustees (AIST) noted that questioning covered a broad scope of topics, broader than what was indicated by the inquiry’s terms of reference.

While funds did answer questions on their activity related to issues raised in the royal commission, AIST noted that much of the questioning focused on relationships between super fund performance, fees, scale and investment strategies.

Advertisement
Advertisement

Differences between for-profit and profit-to-member approaches and outcomes were highlighted, and attention was given to reasons for retail fund underperformance.

Here’s some of the main information to come from the day’s hearings:

AustralianSuper

AustralianSuper CEO Ian Silk said the fund had learned three key lessons from the royal commission:

- The fact that customer interest reigns supreme must be the “watchword”.
- The reinforcement of the notion of community expectations.
- And the dangers of complacency – Mr Silk said that AustralianSuper was an organization that emerged “relatively well” from the royal commission – but it must continually focus on members’ interests.

Mr Silk noted that AustralianSuper has complied with new government measures, including protecting your super and member outcomes, “and in many cases has pre-empted the legal fate of the obligation”.

“We’ve transferred 240,000 accounts ($6 million in member assets) to an eligible roller fund prior to it being passed through to the ATO,” he said.

“We’ve heeded lessons of RC and have acted promptly ahead of the required time.”

IOOF

CEO Renato Mota conceded that the fund did a lot of things in the past they aren’t proud of.

He outlined actions taken by the fund post-RC, including the appointment of independent directors and the establishment of a board and investment trustee “with no other role”.

Grandfathered commissions now account for less than 7 per cent of the fund’s total revenue – a drop of 30 per cent in the past year.

When asked if the fund had done the same thing as AustralianSuper and sent its low balance, inactive accounts to an eligible rollover fund, Mr Mota said: “That’s not the way we operate.”

“You shouldn’t do that. Our long-standing approach has been to consolidate account. We’ve consolidated 20,000 accounts in the last five years. In February this year, we are moving a further 20,000 accounts in accordance with what is expected of us,” he offered.

Australian Labor Party’s Dr Andrew Leigh then indicated that Superrating rated eight of IOOF’s funds below median performance and posed the question: “Is it your understanding that you are currently underperforming on average?”

“That’s certainly not my understanding,” he replied.

“I’d have to have the data to be definitive on that. There are different measures and this needs to be measured differently. We would want to compare over five years. And on our analysis on five years, we are above average. “

REST

REST CEO Vicky Doyle began by outlining that the fund has achieved a 10-year return of 8.95 per cent per annum.

It has a new organisational structure and increased staffing levels across risk and compliance areas, she said.

Liberal Party member Tim Wilson said, “REST has underperformed the MySuper average, particularly as you have low-income earners.”

Ms Doyle responded: “REST’s strategy is about ensuring long-term returns and protecting our members’ capital.”

REST was also questioned regarding its relationship with the ACTU and the $48,000 it is paying the union.

QSuper

QSuper CEO Michael Pennsi and CIO Charles Woodhouse took to the stand and noted that it had reviewed and implemented all reforms that have been legislated.

Mr Woodhouse said the fund believed it received a fairly clean bill of health from the royal commission and was proud of what it has been doing since then, especially in relation to its work in Indigenous communities.

Jason Falinski also questioned QSuper on its placement with regard to climate change, to which Mr Pennsi responded that “the board has asked the fund to focus on climate change”.

Mr Woodhouse said, “The board gives guidance around initiatives, which is to work with ACSI. The ESG team decides how QSuper will vote on company resolutions, the vote is made, and then this is reported back to the board.”

NULIS Nominees Australia

Company director Peter Promnitz and chief operating officer Brian Marriott were both in attendance at the hearing.

Questions to NULIS covered actions taken by the fund post-royal commission, returns, remediation payouts, scale benefits and culture.

Tim Wilson began by asking: “What was the core reason for the wrongdoing you feel you need to apologise for?”

In response, Mr Promnitz said, “The core issue was planned service fees that evolved from earlier product structures where those fees were essentially commissions.”

There were not enough protocols to ensure the services attached to the fees were being delivered, he continued.

“With the benefit of hindsight, those services were jot delivered. It was a lack of attention to detail at the time.”

On the topic of repatriation, Mr Marriott noted there were “grey areas” around their offering of some form of fee for no service.

“We are still working through some remediation,” he conceded.

“Adviser fees charged to dead members is taking time as we have to chase beneficiaries,” the chief operating officer outlined, with the potential for another 2000 cases needing to be remediated.

The Australian Labor Party’s Dr Daniel Mulino homed in on the culture topic, asking the director and chief operating officer to provide concrete examples of what NULIS is doing to improve its culture.

In response, Mr Promnitz said that across MLC wealth management group, “it would be concerning if I thought an employee couldn’t report misconduct”.

He explained that NULIS relies on the MLC Wealth CEO and management team to ensure that the culture is appropriate, but as trustee “we have a fair bit of influence”.

“Our expectations are that all employees working on super ought to know that members come first and any misconduct must be reported,” he continued.

“We are an influencer rather than deliverer of culture change but will take providing concrete examples on notice.”

Hostplus

Hostplus had three members of its executive team in attendance: CEO David Elia, deputy chief investment officer Greg Clerk and group executive, risk and compliance Norlena Brouwer.

Mr Elia began by listing off a number of Hostplus’ accolades before the committee queried the leadership team on its implementation of royal commission recommendations, their presence at the tennis, inactive account management, marketing spend and membership profiles.

The CEO noted that since 1 June 2019, the fund has transferred 10,000 inactive accounts worth $27 million to the ATO. Prior to that, Hostplus had transferred 60,000 member accounts worth $82 million to AUSfund.

The fund plans to send 94,000 inactive accounts worth $189 million to the Australian Taxation Office from April 2020, Mr Elia continued.

The CEO then went on to flag that the average retirement balance of a Hostplus member at retirement is $311,000 for a pension fund member.

The average for accumulation members sits at just under $40,000.

In response to questioning about what percentage of members come from default options, Mr Elia said, “About 250,000 are in our public offer fund, and 1.2 million members in the industry division.”

“Those in the public offer, we make the assumption have made an active decision to join,” he added.

Tim Wilson then queried Hostplus’ spending of “five entire members’ super contributions on tennis each year”, noting that it “seems like an expensive indulgence”.

In response, the CEO said Hostplus is “out there competing against retail funds and other industry funds – the importance of maintaining relationships is key”.

Dr Mulino then asked if they were “confident” they weren’t the only financial services organization in the sporting precinct over the last 12 months, to which Mr Elia replied: “They were all there – ANZ sponsors the tennis.”

The $20 million spent by Hostplus on marketing was also a hot topic, to which the CEO explained that it’s all funded out of a $1.50 fee.

“Consumers have a choice who they want to manage their money,” he said.

“AustralianSuper and Hostplus have two factors – outstanding investment performance and brand, and effectiveness of the brand.”

He said marketing includes TV advertising, servicing seminars, marketing material and tender documents, before noting that Hostplus pays $44,000 to ACTU.

This gives them access to conferences, booths, invitations and an ability to engage with key employers, said Ms Brouwer.

We’ll provide a rundown of what went down in the second day of superannuation hearings tomorrow.

Super funds under fire from government’s bank inquiry
House of Representatives
nestegg logo

Forward this article to a friend. Follow us on Linkedin. Join us on Facebook. Find us on Twitter for the latest updates
Rate the article
author image

About the author

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

Join the nestegg community

We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians

Your email address will be shared with nestegg and subject to our Privacy Policy

About the author

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

Join The Nest Egg community

We Translate Complicated Financial Jargon Into Easy-To-Understand Information For Australians

Your email address will be shared with nestegg and subject to our Privacy Policy

From the web

Recommended by Spike Native Network

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.