It’s time for Big Super to come clean on returns

Australia’s biggest super funds have been put on notice about misleading consumers, and not a moment too soon.

Big funds are free to design their ‘balanced’ funds just about any way they wish as long as they satisfy a criterion badly lacking detail.

Australia’s biggest super funds have been put on notice about misleading consumers, and not a moment too soon.

A surprise fine handed out to the industry fund, Hesta, over potentially misleading marketing of its investment returns comes as the sector is under pressure to come clean on how it achieves and presents returns.

Hesta, which is focused on the healthcare sector, has been penalised by the Australian Securities & Investments Commission for ‘‘statements that may have misled consumers’’ concerning its balanced growth fund. Balanced funds are the most popular among Australian consumers and also the source of ongoing controversy inside the sector.

Hesta had advertised the fund’s returns over a 10-year period – but failed to point out which 10-year period. ASIC says consumers may have ‘‘assumed the fund was performing better than it was’’.

Specifically, Hesta said its balanced growth option “returned 8.87 per cent average returns pa over the past 10 years”, but ASIC pointed out the average return for the 10-year period at the time of the advertisements was lower, ranging from 8.01 to 8.51 per cent.

Hesta’s infringement notice is an embarrassment to the fund – though the accompanying fine of $48,600 hardly matters to an ­operation with $74bn under ­management.

But the penalty has shone a light on the vexed issue of whether consumers are being served best by the loose standards for presenting returns at super funds – after all, super is the most important financial asset outside of the family home.

It is the oldest game in town to highlight investment performance over the best possible period; Hesta would hardly be alone here.

A potentially more troublesome issue for consumers is that there are no clear standards around what constitutes ‘‘balanced’’ or indeed ‘‘growth’’ or ‘‘conservative’’ – the main options offered by most funds.

As a result, when consumers compare balanced funds they are not comparing ‘‘apples with apples’’. This is not the fault of funds – they are making the best of a poor situation – but rather the fault of regulators and legislators who have left too much open to interpretation.

“What we need here is some standardisation of a very important issue – we see huge variations allowed under the concept of ‘balanced’. Consumers could not be expected to know what is going on,” says Xavier O’Halloran, ­director of Super Consumers Australia.

A textbook model for a balance fund would be one that is equally split between conservative assets such as cash and bonds and growth assets such as shares and property. This is the everyday understanding of ‘‘balanced’’ by the retail investor, but in super it is often nothing of the sort.

In recent times, AustralianSuper – the biggest fund in the market – had 65.3 per cent growth assets and 34.8 per cent defensive assets.

A top performing fund such as Hostplus had a balanced fund with 76 per cent growth and 24 per cent defensives.

Meanwhile, REST Super, where the asset allocation is also described as ‘‘balanced’’, had 55 per cent growth and 45 per cent defensive.

Under existing ASIC guidance a balanced fund is a “fund that invests across a mix of asset classes like cash, fixed interest investments, property and shares, to achieve medium-to-long term capital growth and a reasonable level of income”.

In other words, big funds are free to design their ‘‘balanced’’ funds just about any way they wish as long as they satisfy a criterion badly lacking detail. This is the biggest issue in how super fund returns are presented. How the outcomes are advertised is actually a secondary issue.

Originally published as It’s time for Big Super to come clean on returns