Retail advisers placing clients into self-managed superannuation funds (SMSFs) have come under fire from Media Super chief executive Graeme Russell. In his first week on the job, Russell told IM that industry funds are seeing members being rolled out into SMSFs despite meagre savings, and industry has to take note.
“Every fund’s seeing people being rolled out. This activity by the big retail operators is intense.”
Big four at the door
Russell believes one clear benefit of the government’s current reform package is the abolition of commissions on super, but says SMSFs are a method by which financial advisers are overcoming the loss of income.
“There are a number of the big organisations in the retail space doing this,” he said.
More specifically, Russell said planners tied to big banks and other organisations, either directly or through dealer groups they own, are setting up SMSFs for clients. These SMSFs are then managed by the adviser for a fee, and invested in managed funds operated by the big banks (or their subsidiaries) or large organisations – once again for a fee.
“You’re quite entitled to charge management fees, which might look like commissions,” he said.
“The member’s costs are then far higher than would be the case if they remained invested in their industry super fund.”
Cracking the member-engagement nut
Russell flags a trend towards targeting members with lower balances – less than $100,000 – “for whom the economics (let alone the investment returns) just don’t work”.
“They’re out and they’re sucking people into SMSFs, where they’ve got $50,000, $80,000, $100,000-balances… the economics of that for a member [are] poor to appalling.”
Russell said people are being convinced to roll meagre retirement savings into funds that could be exposed to risk and fees, likening the situation to the losses in the Banksia Securities case, which he said would have exposed some SMSF trustees.
“So we really need to be out there, frankly, warning people that there are costs and there are risks in doing this.”
Russell said super funds have to “crack the member-engagement nut”.
“We’re just going to have to work, redouble our efforts and get smarter at communicating the facts to members, including the facts on self-managed super funds, and the costs and the risks.”
Meanwhile, the Australian Securities and Investments Commission (ASIC) last year established a task force dealing with advice around SMSFs. Commissioner Peter Kell told a Parliamentary Joint Committee on corporations and financial services in September 2012 that ASIC had concerns about some of the advice being provided in the SMSF space, “and whether people have sufficient understanding of the responsibilities and sufficient resources to get into that particular vehicle in all cases”.
“As part of that, we would be intending to increase some of the information that goes out through MoneySmart and other channels to potential SMSF users to make sure that they do understand what is involved in that area. So it is certainly a growing focus for the commission,” he said.
|One KPI, many goals|
|Graeme Russell says he has one key performance indicator as chief executive of Media Super and that is to grow the fund during his contract. Russell signed on for a two-year term as CEO, with a potential one-year extension.Russell said Media Super was mindful of more regulatory change “with no apparent benefit” if a new government is elected.“The coalition seems to be very focused on governance issues for industry funds, which are acknowledged as best practice in terms of openness and transparency, but not very focused on the governance issues of retail funds, which for years have been driven by commissions and managed by the fund managers who provide the product, which is a breathtaking conflict of interest and the coalition doesn’t appear to have real difficulty with it.”The industry needs to emphasise the positive track record of industry funds, which Russell believes have been “well governed, completely free of conflicts of interest and delivered the best results at the lowest cost”.“So what is the problem we’re trying to solve here?”The first order of the day, however, is meeting with corporations rethinking their position with corporate funds on the back of government reform. “We’ll be out there talking to the corporations, offering an alternative to running their own super funds. But we have to earn that business, and that’ll be a lot of what I’ll be focused on,” he told IM.Media Super plans to stay firmly within its industry boundaries of print media, entertainments and the arts, according to Russell. He also flagged attention to the problem of underinsurance across Australia, and a focus on the retirement phase and income stream products.
“I think that we also, in the process, need to start applying our minds to how we can help our retired members through the labyrinth of aged-care funding, which is more complicated than anyone could imagine.
“[It’s] a great stress for older members, and I think there’s possibly a role for super funds, because it’s a relevant financial issue when you need to go into aged care.”