Australian commission spotlight less kind to retail super funds than to industry funds

Union-backed industry super funds emerged relatively unscathed from the Australian superannuation industry's two-week run in the crosshairs of a royal commission looking into financial sector misconduct in Australia.

The spotlight was less kind to bank-backed retail super funds.

When 10 days of questioning of top industry executives came to a close on Aug. 17, far more dirty linen had been exposed in the retail super closet — from fees charged for services not provided to instances of super fund clients being guided into higher-costing products — than in the industry fund hamper.

The hearings put the for-profit, retail super fund sector's conflicts of interest on display, as well as the potential costs in retirement savings for people depending on those funds, said Eva Scheerlinck, CEO of the Melbourne-based Australian Institute of Superannuation Trustees.

"We just hope that translates into action," said Ms. Scheerlinck, whose organization advocates for "profit-to-member" super funds, including industry funds and public-sector funds with just less than A$600 billion ($439 billion) each.

A spokesman for the Sydney-based Financial Services Council, which represents Australia's retail super funds, among other segments of the country's financial services industry, declined comment until "the commissioner publishes his findings."

The commission will publish an interim report by the end of September, with a final report planned for February 2019.

Market watchers say it's unclear what new legislation or regulations the commission might ultimately propose for the country's fast-growing A$2.6 trillion super sector.

But the publicity emerging from the royal commission should do little to blunt momentum that was already favoring industry funds and public sector super funds in recent years.

June superannuation industry statistics from the Sydney-based Association of Superannuation Funds of Australia showed retail fund assets at A$603 billion, just a hair above the A$599 billion total for industry funds.

Self-managed super funds for high-net-worth individuals had the largest pot, at $714 billion, followed by public-sector funds, with $582 billion; corporate super funds, with $55 billion; and "other" funds, $54 billion.

While a fast-rising tide of retirement savings — on the back of compulsory employer contributions of 9.5% of employees' wages — has lifted all boats, the growth of industry and public fund totals during the current decade has outstripped that of retail funds.

At the start of 2011, ASFA reported total assets for retail funds at A$352.9 billion, far outpacing that of industry funds and public-sector funds, at A$237.7 billion and A$181.9 billion, respectively.

Competition between industry funds and retail funds was a focus of AustralianSuper executive Ian Silk's turn in the hot seat last week.

The commission asked the CEO of the leading Melbourne-based industry fund, with A$140 billion in assets and 2.2 million members, why it was in those members' interest for AustralianSuper to pay for a television advertisement warning against foxes being allowed into the super fund henhouse.

Mr. Silk said the advertisement was a warning for legislators and super fund members alike about efforts to pursue legislation that would strip the role unions have in identifying a list of super default fund candidates employers can choose from on behalf of their employees, and open the door for banks "to leverage their business relationships" with employers to favor their for-profit funds instead.

If successful, with industry funds dominating the ranks of top-performing funds, that enhanced influence for retail fund sponsors would expose members who leave industry funds to a "poorer experience," and members who stay to "diminished economies of scale," he said.

David Elia, the CEO of A$34.5 billion Hostplus, the Melbourne-based industry fund for Australia's hospitality and tourism sectors, tied his organization's outlays for sporting events and entertainment to the same goal: cementing relationships with the handful of individuals who can select the default fund for an entire industry's employees.