Industry superannuation funds should spend more on marketing and public engagement, and be more bold in giving financial advice to members, according to Garry Weaven, sometimes described as the “godfather of industry superannuation”.

Speaking on the first of Investment Magazine’s ‘Future of Super’ podcast episodes for 2022, the founder and retired chair of IFM Investors also called for a review in the self-managed superannuation fund sector.

Garry Weaven

Weaven said there is a “huge area of need” for funds to give members advice on how super interacts with the pension system and taxation system, how investment strategies impact long-term returns, and on lump sum sizes in relation to salary sacrifice.

Weaven said there is room under existing regulations for “bona fide, helpful advice that is not directed at selling a particular product,” but that “one of the reasons [funds] haven’t done enough is because of fear: fear of the regulator, fear that the regulator is sometimes manipulated by or pushed by forces averse to the super funds themselves”.

Greater trust needed

Greater trust was needed in the political and regulatory environment, he said, and funds themselves needed to be a bit bolder.

Funds also needed to spend more money on public engagement as a “prudent business and industry defence,” particularly with markets looking overvalued and the risk of some negative returns, Weaven said. Consumers need to understand there is “no better way to get rich than the slow accretion of compounding interest, but that doesn’t mean to say that every year is a great year”.

Weaven pointed to the level of progress since early 1980s Australia when the entire retirement system had a total of about $50 billion of savings, and most people didn’t have any superannuation at all, particularly blue collar workers and working women.

Fighting for a basic three per cent contribution to superannuation that was fully vested and fully portable in the name of each worker, and establishing multi-employer industry funds with a completely new model that was to outperform in subsequent years, all against the looming backdrop of an ageing population, are moments that are still distinct in Weaven’s memory.

Mixed report card

But he gave a mixed report card for legislative interventions in recent years. Regarding “stapling” legislation, Weaven said he understood the reason for its introduction, and said “the key to that…is that there has to be a really good system of measuring performance and publicising that performance, so that people aren’t stapled to a dud fund for life.”

And regarding the implementation of performance testing, he also said he is “probably a little less critical than some of the super fund representatives, I think it’s good that there’s an objective test [which] needs to be balanced over time”.

“I would have preferred a more sophisticated means of testing performance,” Weaven said, “but in some ways that… would require more discretion on the part of regulators and I think they need to generate more trust before people would be happy with them having more discretion.”

The regulator’s history “has been tainted by political interventions aimed at the wrong issues, aimed at the wrong people,” Weaven said.

It was also “ironic” that it was a Coalition government that removed the minimum income test for part-time and casual workers to get access to the right to have employer contributions. Combined with the removal of duplicate accounts, this was “a really substantial advance,” he said.

Unfinished business

But some “unfinished business” remains regarding the self-managed fund sector, which Weaven said was created by Peter Costello “as a means of trying to carve out some of the industry away from these newly emerging industry funds”.

While there is a small cohort of people who are good at managing their own money, there are also many people with account balances too small to be efficiently managed, leading to a “false label of self-management”.

“They’re often money languishing in bank accounts with almost no returns, or are over invested in property, which can be good in some years and has certainly been good in the last, but in the long run is a very high risk scheme, not to have adequate diversification over all of the other asset classes,” Weaven said.

There is a public interest in examining this sector, particularly the ability to leverage against these funds, because a failure would send parts of the sector immediately onto the public purse in terms of pension requirements, he said.

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