Deanne Stewart, First State Super

Rio Tinto’s apology for destroying an Aboriginal heritage site at Juukan Gorge in Western Australia and its subsequent decision to commission an independent review were key to First State Super’s decision not to reduce its weighting to Rio Tinto in its default option, the fund’s CEO Deanne Stewart has said.

The ESG-focussed fund – originally the NSW government’s retirement fund for its public sector – did reduce its weighting to Rio Tinto from its socially responsible investment options, and this was in line with what members choosing SRI options would expect, Stewart told Market Narratives, a podcast series hosted by Investment Magazine’s head of institutional content Alex Proimos.

To listen to the full unedited interview with Deanne Stewart on the Market Narratives podcast click above or find the series and episode on Apple Podcasts, Google Podcasts or Spotify.

“Some of these issues are not black and white and you need to work through and navigate what the right thing is for your members with a focus on what’s in the best interest, long term, for your members,” Stewart said. “The key is to have that really clear policy and make that as transparent as possible.”

On the back of merging with Vic Super to create a $120 billion investment giant, Stewart said much work remains to be done in integrating administrative systems, advice businesses and products.

Another merger with WA Super may be on the cards before the year is over, but this will depend on whether there is an “appropriate fit” between the two funds, Stewart said. With a quarter of its members in retirement, First State has a deep focus on products and advice suited to this demographic and this will not suit all funds.

The added scale from the merger would help the new fund deal with an increasing regulatory and compliance burden that is unlikely to abate in years to come, Stewart said. As a larger fund it has the resources to have a team dedicated to this and not be distracted from its core purpose.

“I know many funds that have literally had to stop everything just so that they can meet the regulatory burden,” Stewart said. “That’s clearly not been the case with us but it’s certainly a challenge we have to face into.”

When asked about recent media coverage around potential conflicts of interest that arise from an entity offering both financial products and advice, Stewart said she would be “foolish to sit here and say there isn’t a potential conflict of interest in a business that is more vertically integrated”. The key is to be alert to potential conflict points, make sure they are well managed and that there aren’t “incentives to do the wrong thing”, she said.

“That you’ve certainly seen play out in some other organisations where there’s been extra money for doing your own product, for example. Those sorts of conflicts you’ve got to stamp out,” Stewart said.

“The way we’ve set it up is really to be a service for our members. It’s not where I’ve seen it previously where ultimately it’s a giant distribution arm that brings in members. For us, it’s almost the opposite way around. We’ve got the members, they actually just need guidance and advice and help as they’re heading towards retirement.”

While the fund’s enormous size posed challenges in providing advice to such a large number of members, augmenting human services with digital offerings will play a growing role, she said.

“I think certainly attempting to deliver that [advice] face-to-face you can only get so far and serve so many members, and so we are doing a lot of work at the moment on the future of advice,” Stewart said. “Many members are still going to want to speak to and get help from a human, but I think digital will play an increasing role in that as well, and I think that’s certainly where we would look to continue to get scale from.”

The fund held the view that members could get free intra-fund advice but needed to pay for personal advice without cross-subsidisation from members who don’t need such an offering, Stewart said.

“Ultimately that’s a much smaller group of members who want that, and it takes a huge amount of work and costs significantly more.”

Asked about what role superannuation funds should be expected to play in nation-building projects, Steward said funds are well poised to play a role not just in helping with economic recovery after Covid-19, but making the economy greener and more sustainable. But funds also needed to seek out the “endless opportunities” around the globe to seek out the best returns for members, she said.

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