Investors are pulling their super from Cbus as advisers turn against the industry fund

Financial advisers and their clients aren’t standing by as industry fund Cbus is mired in a string of scandals; they have been moving their money out.

Cbus chair and ALP national president Wayne Swan. Picture: Tertius Pickard

The Cbus-led string of scandals at industry super funds is starting to hurt where it matters.

Investors are switching money out as the self-managed super funds sector rebounds.

New data from the Adviser Ratings group, which monitors investment flows linked with financial advisers, shows elevated net outflows from Cbus following a horror period for the fund whereby regulators launched multiple actions against it.

Cbus has experienced a clear escalation of net outflows from adviser-led investors since July.

In November it had the largest net outflow of any major industry fund at $164m – or about triple the monthly volume it had in the month of July.

ASIC announced on November 12 its legal action against the fund, alleging delayed payments of death and disability benefits.

According to Angus Woods of Adviser Ratings: “The data snapshot shows advisers are willingly moving an elevated level of funds out of Cbus.

“Looking at our data from ProductRex, which covers almost 6000 advisers, we can build a significant sample here. It’s clear advisers recommend clients potentially switch, but clients are approaching advisers on the issue as well.”

With an ASIC court case looming over the death and disability payment delays, Cbus has continued to accumulate negative publicity and Wayne Swan continues to be a focus of the fund’s problems.

Swan – who is both chair of Cbus and national president of the ALP – finally agreed to appear before a Senate committee examining super earlier this week, but only after risking being found in contempt of parliament for holding out.

The Australian on Wednesday reported that Cbus gave a grieving father the run-around for a year before paying out his son’s death benefit and is still refusing to disclose to him key information about what the payment comprised.

Controversies at Cbus also include investigations from prudential regulator APRA into both “questionable expenses” and issues relating to the appointment of new directors and their links to the CFMEU.

Meanwhile, the SMSF sector – which had struggled in recent years as industry super funds brought in strong returns – is rebuilding momentum.

The latest ATO September quarter data shows the sector has topped the $1 trillion in assets for the first time.

Money flowing out from industry funds – especially when directed by financial advisers – is most commonly on its way to newly formed SMSFs.

Wayne Swan with federal Treasurer Jim Chalmers. Picture: LinkedIn

The SMSF sector also received a reprieve this week after the federal government decided to effectively drop the current push to have a new $3m super tax – that attempt to place an extra 15 per cent tax on wealthy super investors is now expected to be pushed out until after the next election.

The issues at Cbus have already triggered a critical report from international ratings group Morningstar which downgraded its “parent view” of Cbus from average to below average.

“Our concerns extend to the appropriateness of union affiliates sitting on Cbus investment committees,” the Morningstar report said.

“This outweighs positive steps Cbus had made to translate its growing scale into lower investment fees.”

Sitting alongside the Cbus incidents there has been a glut of recent failings inside so-called “big super” covering everything from IT failures to unlisted valuations at funds as diverse as ART, Australian Super, Hesta and Unisuper.

Though the adviser-led outflows for other top industry funds are broadly steady to date, the latest run of incidents spells a mounting crisis for industry funds.

Chatrooms and investor forums such as our podcast at [e-mail] continue to be peppered with complaints about industry funds behaving badly.