Feathers won’t fly over foxy fund ad

The royal commission is unlikely to rule that the ‘fox and henhouse’ campaign by industry funds violated the rules.

Royal commissioner Kenneth Hayne.

Despite the fervent hopes of the for-profit super fund sector, the financial services royal commission is unlikely to overrule APRA and find that the “fox and henhouse” campaign by rival industry funds violated the rule that trustees must act solely in members’ best interests.

The reason is that the industry funds can point to a research-backed link between the campaign and member recruitment.

Not only that, but a fund’s unit costs fall as membership increases. It’s called economies of scale and it will be a difficult argument to rebut.

When historians pick over the Hundred Years War between retail and the $600 billion industry fund sector, they will find that one of the peaks of the battle coincided with the release of the fox and henhouse advertisement.

The 2017 ad, which portrays the big banks as foxes raiding a suburban chicken coop as a coalition member unlocks the door, generated a firestorm of criticism.

The timing suggested that one of the objectives was to scupper the Turnbull Government’s plan to require industry funds to appoint more independent directors, and break open the default fund model that favours the not-for-profit sector.

The TV campaign will be one of the topics probed by the royal commission to see if it complies with the onerous requirement on trustees to run super funds solely for the purpose of providing retirement benefits to members.

In the ad, a sinister voiceover warns that Australia’s banks are “putting pressure on our federal politicians to let them in”, before the hand of a man wearing a suit unlocks the door to the coop, allowing the foxes inside.

“The big banks want to get their hands on your super,” the voiceover warns. “Banks aren’t super.”

To the fury of the for-profit funds, APRA considered the issue last year and found there was no violation of the test after seeking responses from two participating funds.

Hayne will reconsider the issue as part of a wider examination of expenditure on marketing and advertising by industry funds.

Industry funds reportedly spent more than $37 million last year on self-promotion, including the equally high profile “compare the pair” campaign that highlights their superior investment performance.

The sector’s total spend was more than 50 per cent greater than the retail funds.

The industry funds don’t expect an easy ride from Hayne, but they would have been encouraged by yesterday’s opening submission from senior counsel assisting Michael Hodge.

When it came to an assessment of the most pressing topics to examine through oral examination, Hodge said there were fewer examples of misconduct or inappropriate use of retirement savings in the industry fund sector than in the retail funds.

“In a number of cases, though certainly not all, the conduct of the industry funds which we have identified as warranting consideration during the oral hearings is very nuanced,” he said.

Cbus, for its part, was celebrating hard yesterday. Despite initially being asked to appear, the fund earned a reprieve in relation to its payments to unions.

Hodge cited a 2015 review by KPMG that identified $7m in payments to shareholder organisations over five years with no formal process to track the desired benefits. Cbus responded by introducing a new model in the 2017 financial year.

While it wasn’t clear if the model was “rigorously applied in all instances”, Hodge said it was a considered framework by which Cbus could assess whether its arrangements with shareholder organisations were in the best interests of members. The fund therefore got a leave pass.

Word on the street

In legal circles it’s become known as the curious case of Corrs.

Why is the blue-chip, national law firm no longer acting for ASIC in the royal commission.

The word on the street is that rival firm Johnson Winter & Slattery has taken over.

JWS’s arrival on the scene is no great surprise — ASIC turned to the firm in May last year when it required an external law firm to help out in the market manipulation case against the big four.

But the question on many legal lips is why the transition has been made midstream, when senior counsel assisting Michael Hodge is preparing to apply the blowtorch to ASIC and prudential regulator APRA.

In his opening submission yesterday, Hodge made an implicit reference to a regulatory gap.

He noted that ASIC was not responsible for overseeing the compliance of directors with their separate obligations under the Superannuation Industry Supervision Act.

Hodge noted the Productivity Commission’s draft report was critical of APRA’s behind-closed-doors supervisory activities.

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