Industry superannuation cashes in on retail fund exodus

Data from the Australian Prudential Regulatory Authority (APRA) shows that the total assets of industry superannuation funds increased by 13.9% during 2018-19, to $719 billion. In contrast, the total assets of retail super funds rose by just 0.5% to $625.7 billion, with the sector recording net cash outflows of almost $36 billion. IFM Investors chairman Greg Combet says industry funds have benefited from strong outflows from retail funds over the last 18 months. Meanwhile, industry funds delivered total returns of 7.4% in 2018-19, compared with 6.4% for retail funds. From The Australian:

Speaking at the Financial Services Council summit in Sydney yesterday, Greg Combet, the chair of industry super fund investment body IFM Investors, said super fund members were “voting with their feet” by opting for industry super funds because of their better investment performance.

“There have been pretty strong flows into a number of industry funds over the last 18 months,” he said.

He said an estimated $40bn to $50bn had passed from retail super funds into industry super funds over the period. “It is not insignificant,” Mr Combet, a former secretary of the ACTU said.

This is good to see. The Productivity Commission’s (PC) inquiry into Australia’s $2.6 trillion superannuation industry revealed in all its hideous glory that retail funds’ fees are well above not-for-profit funds:

Accordingly, retail funds have delivered significantly lower net returns:

The PC also found that reported fees in Australia are significantly higher than in many other OECD countries, due largely to the rorting by retail super funds.

Audited performance data provided to APRA also revealed that the biggest superannuation fund operated by each of Australia’s four major banks, along with the largest super funds operated by AMP and IOOF, yielded total average annual returns of 2.1% to 3.1% cent in the decade to 30 June 2017.

This was well below the average annual return of 3.8% delivered by “risk-free” cash investments over the same period. It was also way below the six largest industry super funds, which yielded around double the returns achieved by the biggest retail funds:

Comments

  1. “Meanwhile, industry funds delivered total returns of 7.4% in 2018-19, compared with 6.4% for retail funds.”

    This is such a nothing statement, so devoid of fact it borders on intentionally misleading.

    • Take it up with tubby sam at hostplus he love the non risk adjusted return table of balanced!

    • Garry Weaven was allegedly heard just prior to the RC “Good we’ve taken care of retail super, now we will go after SMSF’s next”

      Industry funds are the biggest lobby group in Australia, and using super savings to pay for it.

      • Strange Economics

        The Banks, which owned the private super funds aren’t the biggest lobbyists?

        The extra fees 1% extra charged by the bank super funds is invested wisely in large bonuses spent on high end property.

        • “The Banks, which owned the private super funds aren’t the biggest lobbyists?”

          Nope, they pale in comparison to IF’s

          “The extra fees 1% extra charged by the bank super funds is invested wisely in large bonuses spent on high end property.”

          I’d like to find a non-legacy product where platform and ICR’s exceed 1% anymore.

          The only product fees in excess of 1.2% in post-FOFA products are industry funds.

  2. I really need to dump AMP – any suggestions of good Industry funds based on good experiences/returns ??

    • Asset valuations are the main problems with industry funds. Many are in joint infrastructure deals and large gov. buildings etc. which can be valued largely how you like until something happens. Pity they didn’t have to report capital and income like mutual funds but they are pooled funds and necessarily opaque to us mere mortals. Oh to be an actuary in Australia.

      • Mark to fantasy is one problem with industry funds, but not the only.

        RG97 compliance has shown they are much more expensive than previously disclosed, and often a higher cost than post-FOFA retail funds.

        They have also taken liberty with asset classification in terms of ‘growth vs defensive’.

        There is a notorious example of a ‘balanced investment strragye’ being 97% growth assets and 3% defensive assets..

        Authorised reps putting their clients into 97/3 are able to get a return well in excess of industry fund returns.

    • Because I was a typical mug punter I ignored my super and was mercilessly gouged by my retail fund for many years. Low returns and fees charged for no service. Scum. My fault entirely for allowing that to happen though.

      When I turned 50 I realised what was going on and changed literally the next day to Australian Super.

      I follow the markets closely and rebalance the allocation of funds to change the risk profile according to my whims. AS lets you do this when you like at no cost. In seven years with AS I’ve turned about $92K in the fund into over $400K.

      At the moment I have a very low risk, low gain position and I’m quite happy to have avoided the recent market shenannigans and still be up about 1.6% since the star of the FY.

      • thanks for sharing that – AS is on my short list…. what kind of annual returns do you achieve? I think with AMP in a high risk allocation I’ve received 4 to 5% over the past decade … pathetic really!

        • No idea what high growth investment option from which AMP super you have been looking at. AMP’s in house high growth option has been kicking ass in the past few years and well over 5% pa. Are you sure you are doing a fair comparison?

      • “At the moment I have a very low risk”

        I would suspect you’re at greater than than you know.

        • I dunno. I appreciate that everything’s pretty damn risky at the moment, and it looks like it’s going to get worse. Cash would be the least risky option, but I want to get some returns. I’m largely out of equities at the moment, which is a place I’m happy to be.

      • @bendy average over the period about 8.5% pa so not spectacular but pretty good.

        Looking back, I could have done better if I’d taken more risks, but that’s with the benefit of hindsight. I could also have blown myself out of the water.

        I’ve become increasingly risk averse as I approach retirement so I’ve sacrificed some profit with the aim of actually having money to retire on. I don’t expect to have that sort of return over the next few years to retirement, as things increasingly look like they’re going to turn pear shaped.

        Good luck with it all.

    • The MB fund is an investment option, not a super trustee.

      Superannuation does not generate a return, it is a tax advantaged vehicle held on trust.

      You super fund holdings 100% deposits, will return the same amount as term deposits in your own name, in pre-tax dollars.

  3. Have been doing some homework recently re Industry Funds as I was like LSWCHP & hadn’t taken control.
    But some of my research does rather point to Industry Funds being very opaque in what they are disclosing, especially in their classifications of risk profiles. I was a bit taken aback with what was considered balanced. It is also pretty difficult to get any traction re how they value Infrastructure Investments & the like & what % of their total funds are made up of Infrastructure. Sort of has left me wondering if they are as good as we’re being led to believe. Also have got pretty annoyed with that Weaven guys attitude & the other one with the big moustache. Bit smug, like previous AMP agents.

    • Look at page 8 of AustralianSuper’s current PDS, expressing in large text an admin fee of $2.25 per week, only to half the small print of $2.65, and they’re taking the liberty of deducting 15% prior to reconciliation.

      Look one the same page 8 about ‘other fees and costs’ referring to an entirely different document (hyperlink to help sure).

      Look at that document on page 2, a whole raft of MER’s, what you’d expect in the vicinity of 0.34% – 0.85%, like you’d expect

      Look on page 3, another raft of other costs not included in the above, and explicitly saying ‘we don’t include in the investment fee’ such as implicit transaction costs, property costs and borrowing costs. Not hard to rack up another 015% of hidden costs, there… except for the property fund…

      And Australian Super is one of the funds with the least amount of non-explicit costs contained in the PDS, heaven help you if you’re in HostPlus or Maritime super.

      • Hey RP thanks for the insights re Industry Funds and whilst I agree with your views on the opaqueness I’m not sure it matters for many people… re the the Mark to Mark issue – that caravan park they own won’t be worth as much when/if they have to liquidate so their returns are a bit BS – In saying that does it really mater if you aren’t the last man standing and/or as LSW note avoid their unlisted assets (ie don’t just choose a “balanced” option). Similarly if you have a large balance their $ admin fees start to become ok compared to the retail players largely bps fees (which is counter the average underlying Industry Fund customer base who have very low balances). What I’m saying is maybe (not advice) the big Industry Funds like Aussie are ok for the average MB punter who can do a bit of asset class selection? Disclaimer: I work for a Retail player.

        • It’s only small balances the industry funds are close to parity.

          After $300k or so, newer retail funds squash industry funds on overall fees. more so with big IFA’s who can negotiate different price cards.

          • Thanks but then you pay the IFA the advice Fee. If you do it yourself the large Retail players don’t let you go direct so that’s where Industry Funds work (or if you have an employer fund in the Retail space – but you’ll want to move as soon as you leave your employer because the fee jumps big time).
            Separately re MTM- my thinking is on the unlisted front it doesn’t mater if you get out before they have to realise the asset (agree it is a Risk).