Nick Bruining: It pays to know who’s running your super fund

Superannuation fund trustees have been put on notice to improve their game, or face the wrath of corporate regulator the Australian Securities and Investments Commission.

The watchdog said the performance of trustees would be an area of attention during 2024, with the aim of improving outcomes for members.

Many super fund members are not aware of the crucial role trustees play in the operation of their fund and that the decisions made by the trustees can have significant and lasting consequences.

“We will take strong action to protect consumers against conduct that is not efficient, not honest and not fair in this sector,” said ASIC chief Joe Longo at last week’s annual conference in Melbourne

ASIC’s attention will look at back-office services, communications and advice given to members.

“Trustees should put, must put, members at the heart of decision-making in relation to how superannuation products are developed, governed and marketed. Members must be at the heart of how funds operate day to day,” Mr Longo said.

The focus on trustees comes on the back of a number of issues highlighted by Your Money during 2023. These include duplication of superannuation accounts and associated administration fees plus long delays in processing death benefit claims.

Trustees of a superannuation fund are ultimately responsible for the day-to-day operation and where members’ money is invested.

Typically, a super fund has two separate roles being performed by two distinct entities — the running of the fund by the trustees and the (sometimes) outsourced management of members’ money. In many cases both entities are owned by the one parent organisation.

Unlike a company structure where the board of directors is elected by shareholders, super fund trustees are effectively self-appointed or appointed by the parent organisation, with no direct accountability to members.

To be honest though, most members wouldn’t be aware of what their super fund is up to, unless something goes wrong.

The only real option for members unhappy with a superannuation fund’s management is to change funds. The explicit role of a trustee, however, is to act in all members’ best interests. While that includes investment returns and the operation of the fund, many super schemes have begun to flex their muscles in other areas thanks to their significant shareholding in major Australian corporations.

But not all members are happy.

“We’re seeing some of the very large superannuation funds taking on an activist role,” said Subiaco-based financial adviser David Jarrott.

“While some members welcome their funds tackling social and other issues, many members would rather the trustees concentrate on generating decent investment returns.

“To be honest though, most members wouldn’t be aware of what their super fund is up to, unless something goes wrong.”

Industry experts warn that the decisions taken by trustees might also be conflicted when the super fund has links to managed funds that it invests in on behalf of members.

Many trustees have very close links to these managed funds. Often, these are part of the same group of companies as the super fund.

David Huggins, a lawyer at Huggins Legal, specialises in disputes involving financial service providers acting for both providers and consumers at various times.

“In theory, there are no real limitations as to where a trustee can invest, as long as they can justify that it is in the best interests of the members,” Mr Huggins said.

“The fact is, the real money is made from the fees collected in managing the assets

“It’s no surprise to see trustees investing in managed funds where the managed funds and the super fund are part of the same group of companies. The obvious question is, do these conflicts affect investment decisions, particularly when the managed funds are not performing as they should?”

With more than $3.5 trillion tied up in superannuation, the industry will be keen to see where ASIC’s attention is directed.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association