Following the recent royal commission into the banking and finance industry, a huge amount of bad press has ensued for retail superannuation funds. Just to be clear, a retail super fund is a super fund where the trustee role is conducted by a third-party provider, for which a fee is paid. These trustees are normally banks or financial companies.
This compares to an industry super fund where the trustee role is still performed by a third party, but the third party may have close links to a specific industry. For example, the HESTA industry super fund is linked to the health and community services industry. A fee is still paid for trustee duties but the fees are, in many cases, lower than the retail option.
A further comparison is the third option of a Self Managed Super Fund (SMSF) where the trustee role is carried out either by the individual members or a trustee company that is controlled by the individual members.
Industry super funds have historically also been linked to the particular unions in that industry, however, this link was barely discussed in the recent royal commission. An interesting article appeared in the Australian Financial Review on the 15th March 2019 which stated that:
"The Australian Council of Trade Unions has declared that the $1.4 trillion accumulated in industry superannuation funds is workers' money that the union movement will use as an industrial relations weapon to force companies to raise wages and conditions. ACTU president Michele O'Neil told a superannuation conference on Thursday that Australia's business elite was "afraid" working people might realise they had the power, through their super funds, to control decision-making by companies.'"
The article went on further to explain how these super fund investments could potentially be manipulated. For example, if BHP is not providing good enough conditions for its workers, as deemed by the relevant union, the super fund may just reduce its holding in BHP shares – one of the top 5 companies on the Australian stock exchange.
This type of potential market manipulation by industry super funds with vested interests is worrying to say the least, and it also leaves other super fund investors open to investment manipulation from which they stand to receive no apparent benefit. The particular industry super fund in question in this AFR article was Australian Super, which just happens to be the largest industry super fund in Australia and also one that has balances for a huge variety of investors, including many who don't happen to work at BHP.
So where does this leave the average person and their super fund, when the banks can't be trusted and perhaps neither can the industry super funds? Superannuation will end up being most people's number one asset besides their house, which means it is incredibly important to consider what happens with this money. Our suggestions are:
1. Whichever super fund you go with, the fund must adhere to the member's best interests form an investment perspective.
2. Consider the fees you are paying on your super fund and whether you are getting value for these
3. The issue of transparency around the underlying superannuation investments is a big deal – know what you're invested in and seek advice around how these investments may or may not be working for you
In summary, superannuation is a tool to get you where you want to be in retirement, and it's an important tool. If you'd like a second opinion on how your fund is meeting your needs, we're only a phone call or email away.