Banking royal commission: Top super funds, regulators in firing line

Managers of the nation’s $2.6 trillion retirement savings face the most forensic examination of their conduct in two decades.

Top retail super funds and industry funds face grilling at the royal commission. Picture: Hollie Adams

Australia’s biggest for-profit superannuation manager, AMP, and the nation’s largest fund, AustralianSuper, have been called up to face a grilling at the banking royal commission, as managers of the country’s $2.6 trillion pool of retirement savings face the most forensic examination of their conduct in two decades.

The competence of Australia’s financial regulators will also be probed, with the Australian Prudential Regulation Authority to be put on the stand for the first time during the royal commission after it faced intense and escalating criticism over its failures to safeguard the country’s nest eggs from fee-gouging and dismal ­returns.

Financial advice powerhouse IOOF will appear alongside 13 other retail and industry superannuation managers over a fortnight of hearings starting on August 6 that are expected to air some of the most explosive proceedings yet at Kenneth Hayne’s banking and financial services royal commission.

Both the bank-run retail super sector and the union-and-­employer-backed industry fund sector will be combed over by counsels assisting the year-long inquiry. They will also question APRA’s conduct in regulating the super sector and the potential failings of the Australian Securities & Investments Commission in ­policing misconduct in the savings industry.

Top actuary Michael Rice, who runs superannuation consultancy Rice Warner, said it was interesting that the major for-profit providers were chosen to appear from a list of 31 funds the royal commission had probed for information. “A theme there is: are members getting value for money?” Mr Rice said.

He said APRA has had the statistics on the performance of MySuper funds and that it could have revoked authorisation for providing low-fee default products. “There is quite a view in the industry that the regulators knew about these things and should have done something earlier,” Mr Rice said.

“APRA’s view is that the funds would have just taken them to court, but it would have been a brave steed for a fund to take on APRA if they were told they had underperformed and shouldn’t exist. ASIC also seemed to have known about a lot of these things and seemed to be happy about an enforceable undertaking rather than taking it further.”

Among the for-profit funds to be grilled on governance arrangements and dealings between trustees and financial advisers will be AMP, which manages about $120 billion in funds, and other major retail giants National Australia Bank’s MLC, Commonwealth Bank’s Colonial First State and ANZ’s OnePath businesses and IOOF. Notably, Westpac, the only major bank to remain committed to its superannuation business, has avoided a call-up to give evidence at the royal commission, which will also probe Suncorp and Mercer. Westpac had been served “hundreds” of notices to produce information related to its BT Financial Group superannuation division.

On the industry super side of the sector, the $130bn AustralianSuper will be grilled alongside the $40bn Hostplus, Sunsuper and Cbus’s United Super. Catholic Super is also set to face questioning, likely over its failed merger with the Australian Catholic Superannuation and Retirement Fund — a deal that was scuppered after disagreement over who would chair the merged entity. The Electricity Supply Industry Superannuation fund will also be questioned, while QSuper will be grilled on its dealings with Aboriginal and Torres Strait Islander members.

The Productivity Commission’s draft report into the super system, which found entrenched overcharging and underperformance in the for-profit fund sector, and a trail of underperforming trade union funds that refuse to merge despite it being in their members’ best interests, has been informing the Hayne inquiry.

The Productivity Commission’s report made special mention of the failings of APRA and ASIC, which it said focused “too much on funds rather than members” and didn’t police poor conduct. Under the law, superannuation trustees in charge of managing the retirement savings of members must act in the best interests of their members. However, for-profit companies listed on the stockmarket, such as AMP and the big four banks, also have a fiduciary duty to act in their shareholders’ best interests. The latest data from SuperRatings shows super funds run by CBA, ANZ, NAB, Westpac, AMP and IOOF — another large retail super manager — were consistently among the worst performers over the past 15 years.

Retail fund fees have been twice as high as non-profit industry fund fees. Meanwhile, retail super providers have grossly underperformed in investment returns.

Some of AMP’s biggest corporate customers have already been pressuring the scandal-hit wealth management company to come clean about any unscrupulous practices within its $28bn corporate superannuation business. About 80 per cent of new customers to AMP come through its employer super agreements. AMP provides super services to more than 60,000 employers across the country. The company has about $120bn in assets under management overall.

The Australian yesterday revealed that the royal commission in recent weeks probed AMP and the major banks on fees being charged to super members where no service had been given, the performance, or entrenched underperformance of investment platforms, the retail sector’s tardy approach to the legally required MySuper transition to low-fee funds, and high fees being charged for low returns.

Mercer, a US-owned multinational, was recently found to have instructed staff to keep members in products with higher fees than alert them to low-fee products.

Directors of both industry and retail funds are expected to face a grilling on governance issues.