Foul called on MySuper

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Barry Rafe of Rafe Consulting has prepared a report into the new Fair Work Act rules for superannuation, after being commissioned to do so by the HR Nicholls Society.

Rafe has found the changes to be anti-competitive in that they entrench the industry funds and are biased against new entrants to the market. He said the changes will achieve the opposite effect to what the Productivity Commission intended, which was that:

“[T]he selection of default products for awards should be merit rather than precedent based, and should encourage improved performance through competition”.

Of the listed default funds in modern awards, 50% are industry public offer funds and a further 20% are industry non-public offer funds. Rafe concluded that existing default funds will be embedded purely on precedent and will have a compelling argument to extend their listing across all awards.

He said the maximum of 15 funds per award is anti-competitive, particularly because many industry funds share back-office capabilities and “have organised themselves into purchasing blocks".

While industry funds were innovative when they appeared and have helped to move the super sector forward, the industry has now matured and they have lost their competitive advantage, said Rafe. But with a maximum of 15 funds per award, those that are new and innovative will have trouble achieving the default status over those with a proven track record.

Many employers will be forced to move their employees to a fund that is inferior, if they don’t have the resources to apply for their current arrangement to be approved.

“This does not appear to be an outcome that is in the employee’s best interests,” said Rafe.

He raised concerns that people on the expert panel may have strong industry fund or union links and place unnecessarily high hurdles on employers in proving that their option is superior. Not only would they struggle to have their case heard by an unbiased decision maker, but there is no requirement for an on-going assessment of the list of funds in awards.

The report findings don’t come as a surprise to CSSA Treasurer and corporate financial adviser Gareth Hall.

“If you design a product called MySuper to be a default superannuation fund, then it’s completely illogical that you would want to have any other process involved to determine which MySuper fund is suitable for an award. It just defeats the whole purpose of having MySuper in the first place.”

Hall is worried about the impost on employers, saying that they will not be able to continue in relationships that they may have with a fund that previously covered all their employees and offered tailored insurance.

“In my personal experience with my employer clients, they don’t have any choice now. Even if their existing arrangement with a provider is superior to that provider’s MySuper option, their new contribution has to go into the MySuper. So members are today paying more, as a result.”

He says that many product providers are using a product that might be cheaper but could also be completely indexed-based fund, which is a very different product that is cheaper to run. Hall thinks  many members would have had access to cheaper indexed-based options under their previous fund that would probably have been cheaper than the option they are now in under MySuper.

Advisers in the space will struggle, as they might not be able to make contributions for the client into the fund they have established for them. This will affect corporate advisers more, as retail advisers can get their clients to sign a choice form to have their super paid into their current fund.

  • Craig Yates on 20/08/2013 11:36:57 AM

    To Matthew Ross:
    The principle is the same Matthew is it not?
    Regardless of the financial support and sponsorship monies paid to any organisation or business by a superannuation fund, the trustees must be able to clearly justify their decisions on the basis that the financial commitment is in the best interest of their members.
    The HostPlus website clearly states that their fund is "run to benefit members", so it would not be unreasonable to ask the question as to exactly what benefit does the sponsorship of the Melbourne Storm,the Essendon and Gold Coast Suns clubs and others deliver to the members in regard to enhancing their retirement savings ?
    HostPlus state that all their operating costs, including advertising (ie.sponsorship), is funded by the $1.50 per week member fee.
    So, take the yearly Member Fee of $78 and multiply it by the 1 million members and you have yourself a tidy $78,000,000 of which the amount used to sponsor these sporting teams is not clearly identified on the website, unless it is identified clearly in the HostPlus annual report?
    HostPlus claim their fund has nearly a million members and 90,000 employer members, but only have 9 financial planners listed on their website. The hourly fee charged for engaging the services of these planners for personalised planning advice is $295.
    To enhance the engagement, accessibility and affordability for fund members to access personalised advice, would it not be deemed more of a benefit to members to utilise the funds poured into sporting club sponsorship to significantly increase the number of financial advisers available to members, and subsidise the cost of the advice, so members are better educated, knowledgable and in control of important financial decisions?
    HostPlus infer on their website that because their members attend sporting events and travel, stay in hotels and eat in restaurants etc that this is creating jobs in the industries where their members work. But is a superannuation fund a vehicle designed for job creation,and industry support that the funds own members pay the bill for ?
    Isn't that the role of Government ?
    Or is the current Government and the Industry Super funds one in the same ?
    How much of the $78 annual Member Fee, is used for the sponsorship and financial support of sporting teams and do these members have a say as to whether they agree to this allocation of their money?

  • Matthew Ross on 19/08/2013 8:57:57 PM

    So Craig Yates, how do you feel about HostPlus being a premium sponsor of the Essendon Bombers?

  • Craig Yates on 16/08/2013 12:01:01 PM

    Trustee responsibility dictates that their governance and decisions regarding the management of a superannuation fund is in the best interests of it's members, is it not?
    Therefore, how do the trustees of Host-Plus justify their decision to their members to not only spend bucket loads of money on the sponsorship of the Melbourne Storm whilst they were in deliberate and direct breaches of the salary cap, with additional, non disclosed payments to players, but continue to sponsor this sports team today !!
    Do the past practices of the Melbourne Storm sit well in association with a large superannuation fund given the responsibility to prudently manage their members money and adhere to strict governance regarding the best interest of the funds members?
    Would that be deemed an appropriate association ?
    Where does the money come from to continually pour money into this support and is it deemed to benefit the funds members?
    If it is members monies that are being used for sponsorship purposes they are entitled to be informed in as to how it specifically benefits them and their superannuation savings.
    Seeing your super funds logo emblazoned on everything and anything to do with a sporting team may give a warm fuzzy feeling to some of it's members, but for what $ value to the member and at what $ cost.?
    Let's face it,it has nothing at all to do with trustee responsibility and everything to do with building member numbers,market share and brand awareness.
    So, does this big $ spend on sponsorship benefit the fund members or benefit the unions? Agree with John Walker....this is all about providing power and control to the unions and utilising members monies to provide the funding mechanism.
    It is interesting that the advertising slogans don't say " We spend money to support a sporting team that was proven to have broken the rules in regard to money....let us manage your retirement savings!
    ...and we never have charged sales commission...and never will"

  • James Smith on 14/08/2013 3:33:30 PM

    We need to continue the fight against intra fund advice for two reasons. 1 To protect the consumer. We have experienced the poor service provided by big industry and retail funds and we need to shout from the roof tops that they are not in a position to provide any advice. Their track record speaks for itself.
    2 To ensure we have a level playing field. It is preposterous that industry funds can say whatever they like in the media and disclose whatever they like in relation to admin fees and performance and take money directly from customers based on misinformation whereas advisers, quite rightly, need to demonstrate a knowledge of the client and a reasonable basis for the recommendations. Consumer protection is for all consumers. Stopping this backdoor path to increasing their FUM will also enable retribution from the planning industry as these same institutions that have mocked the advice industry come cap in hand requesting support to recommend their products. We should start by charging them for our time to listen to them spruik their products.

  • Nigel on 14/08/2013 9:32:14 AM

    I have to agree with a lot of the above, especially James. Being a "professional" should not be dictated by a piece of paper or title. It is about how you interact on a day to day basis and I believe most advisers act and have acted in a professional manner for many years in my experience. Forget about chasing titles and entering into discussions about what advisers need to do to become a "profession". The current environment is just making it harder and harder to provide the ongoing service that our clients value and need. If nothing else it just shows how adaptable advisers are as I can't think of any other industry or profession that has been through the regulatory changes we have over the last 10 years.

  • James Smith on 14/08/2013 8:30:51 AM

    The first step is for the Coalition to win on 7 Sept. The second step is to stop the nieve dialogue about how this industry can 'become' a profession. We already are and to liken us and our fee structures to accountants and lawyers is mistaken. We do not turn on and off our service as they do. We are dealing with moving markets and client emotions,changing legislation and either bridging service gaps left by the big super funds or managing portfolios in a dynamic environment. The advisers should define professionalism not industry funds or large retail fund managers who have no clue of what we do on a day to day basis nor the end to end wealth management process. We make a huge contribution and our services are valued by many. There will always be others that do not see the value of advice or want to be self directed. They are not our market and we should not define our industry based on them. Let them go direct to the industry funds and hold them both accountable for the decisions they make.

  • John Walker on 13/08/2013 6:23:11 PM

    Lets follow the money;
    the more members in an industry fund the greater the fees collected and thus the more money paid out to shareholders.
    The shareholders are UNIONS who in turn fund the labor party who wish to be in
    government to direct money to the unions. I read where the unions gave 20 mill to labor in 07, rudd gave 10 mill back for education purposes and so did Gillard... total 20 mill... in tennis we call it a round robin

    ALL OF THIS IS ABOUT POWER when will our industry wake up ?

  • Joss on 13/08/2013 2:30:07 PM

    A few years ago I wrote an article that was published. I mentioned that the Industry Funds were encouraging all and sundry to move into their Funds without advice. I suggested that there may be a class action for the widows and orphans of deceased members and those now disabled members, who had lost the benefits of their insurance cover that had expired on these "no advice" moves. It would not be that difficult to establish which members had died recently, or are now disabled, check their entry dates and the movement to the industry fund, and establish what cover had been thrown out and lost. I reckon there are many many millions to which these beneficiaries would have been entitled.

  • James Smith on 13/08/2013 11:07:43 AM

    What a tragedy that support for unions has destroyed another service industry ( ie corporate super advice ). There is enormous potential value in incorporating personal financial planning services into employee packages but sadly the preferred outcome is to offer a one size fits all approach where each employee is a number that goes through a standardised process. The irony is that the cheaper investment option resembles an indexed fund approach that is already available without My Super so nothing is achieved to improve the after fee performance and with no service offered there are no jobs created. It really is short sited policy. We desperately need a government that supports economic growth and cuts red tape. As our big corporates continue to cut staff and send jobs overseas small business offering personalised service need to be supported. It is not rocket science.

  • Alistair on 13/08/2013 11:24:22 AM

    Okay so let see if I understand this. The Mysuper concept FAILS in providing for the best interest of the member (client). How extraordinary. Another thought bubble from this pathetic government failing the consumer for the sake of UNIONS. Anti everything from a competition point of view and most importantly bad for the consumer. Arrogance and stupidity combine once again from this pathetic excuse for a government to damage business and hurt the most important player in this. The consumer. So well done Labor and their supporters. Another stuff up and yes the mask is off. We know what this government is about. A scorched earth policy to drive EVERY SMALL BUSINESS owner into the ground. I am scared not because this government does not know what it is doing but that they do not know that they do not know what they are doing !
    Bring on September 7. Give us all a New Way....without any Labor member. Send them and their Union mates and their supporters to the bottom of the sea. Now that would be a good start.

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