Outgoing IFM Investors chair Garry Weaven has cast doubt on the future strength of the big banks’ business models in the wake of bruising Hayne royal commission revelations, but has stopped short of suggesting retail banks should be turfed out of superannuation altogether.
Industry funds’ asset holdings climbed to $632 billion – up from $622 billion – in the June quarter, outpacing retail funds for the first time, a pattern Weaven said would continue.
“One just wonders what their [the banks’] business model might be. Once you lose the contaminated advice channel as a major source of getting business, it’s a bit hard to know what you’ve got – if you don’t have bank branches and you don’t have a contaminated financial planning organisation, it’s hard to know what your model is,” he told Investment Magazine on the eve of Tuesday’s $113 billion IFM Investors annual meeting.
Industry funds to benefit
The meeting is Weaven’s last as chair before he steps down at the end of December. He is also stepping down as chair of Industry Super Holdings and publication The New Daily.
“I suspect that the industry fund sector will grow quite a bit as a result of what we’ve heard already [at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry] and what may be coming in terms of the regulation of financial advice, so I think the industry sector will get the benefit of a lot of that,” he said.
Westpac is the only member of the Big Four retaining its wealth management function, with the Commonwealth Bank, ANZ and National Australia Bank hiving off some of these now tainted assets.
Already, industry fund giant AustralianSuper, Cbus and Hostplus have reported an uptick in funds flow on the back of the royal commission and the draft Productivity Commission report, which found retail funds had underperformed their profit-to-member counterparts.
On the corporate super side, Queensland-based industry superannuation fund Sunsuper has experienced a jump in enquiries from employers seeking to switch funds, and AMP has already lost contracts with Australia Post and Anglican National Super.
Weaven said the self-managed super fund (SMSF) sector had the “biggest question mark” hanging over its head.
“For a lot of people, it is the big underperformer. On the other hand, people won’t generally argue against choice altogether. I don’t think it will be killed off but maybe the playing field will be levelled,” he said.
Long-term performance is what matters
Despite industry funds sailing through the royal commission in comparison with their retail rivals, Weaven said he didn’t have a “fixed view” about one model or another always being the best to deliver better retirement outcomes for Australians.
“From my point of view, the important thing is the regulatory environment focus on long-term performance. Let’s not confuse it with other concepts. Performance should be measured in terms of what goes into members’ retirement accounts over a reasonably long period,” he said.
“So the system must be focused on weeding out chronic underperformers in terms of net benefits to members. Under the models that have been legal and legitimate until this time, there was a fair chance that you were to underperform if you listened to a financial planner employed by one of the big banks.”
Eva Scheerlinck, the chief executive of the Australian Institute of Superannuation Trustees, has called for the retail banks to be stripped of their ability to offer a MySuper product while the CFMEU and Transport Workers Union want legal change to remove banks from super.
Weaven, who has spent 24 years at institutional fund manager IFM Investors, will also step down from his board position Industry Super Australia (ISA) at the next federal election.
Former federal government minister and current IFM Investors deputy chair Greg Combet will replace Weaven as chair. In addition, Combet has recently replaced Peter Collins as chair of ISA.
Going out on top
Weaven said it was “quite a natural fit to have cross-pollination between IFM and ISA”.
“I planned this for some time in advance for when I turned 70, and it couldn’t have probably turned out to be a better time in terms of the way in which the last couple of years have gone,” Weaven added. “Many of the things that we’ve been striving for have either been cemented or given a fillip in the last couple of years.”
IFM Investors has 350 investors around the world, with around 270 of those based offshore.
In recent months, Weaven has been calling for greater collaboration between the private sector and super funds, arguing that industry super funds could partner with banks, which are being pressured by looming lending restrictions emanating from regulatory change.
“I think that this would be facilitated if there was less conflict at the political level and more consensus at federal and state level. The industry fund movement and the super industry as a whole could make a very good collaborator and partner.”