Talk about not putting your money where your mouth is! While fund governance has long been an issue of importance in the corporate sector, this recognition has been a long-time coming within the superannuation industry. Clearly, more research needs to be done to explore linkages between governance and performance. AIST is currently in the final stages of a research study with Sydney University to further examine this issue, the results of which are expected to be released early in the new financial year. Meanwhile, it seems reasonable to speculate that the differences in the governance outlined by APRA at least play a part in the underperformance of retail funds.
This then raises the question as to whether the profit motive of the retail funds may diminish investment returns. The APRA report should be compulsory reading for critics of the representative trustee system who judge it to be second-rate or obsolete. It should put an end to calls for the need for so-called “professional” trustees on the boards of the not-for-profit funds while members of the funds themselves can rest assured that their money is in good hands.
Unfortunately, the same cannot be said about retail super fund investors. Given the compulsory nature of super, investors are entitled to demand a straight A performance from their fund – on all fronts. As the APRA report tellingly reveals, the vast majority of retail fund directors are well aware that better value can be found elsewhere – indeed, some have privately confided that the not-for-profit funds offer excellent value.
They know that a C plus average isn’t good enough. It is now up to the government, as well as the regulators, to ensure that more retail fund investors and their financial planners reach the same conclusion.
For my part, I certainly know that if the person sitting next to me got paid significantly more than me, put in less hours, abdicated most of their decisions to others, and, to top it off, underperformed – I would be asking some hard questions.