Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 271

Industry funds capitalise on Commission wins

[Editor's note: Eva Scheerlinck is the CEO of the Australian Institute of Superannuation Trustees (AIST), the peak representative body for the profit-to-members superannuation sector. Industry funds have come through the Royal Commission largely unscathed, in complete contrast to the retail fund industry. It is a stunning success for industry funds, a traditional target of Coalition governments, and the Commission’s findings will reshape the superannuation landscape forever.

For example, the largest industry fund, AustralianSuper, reported over $1 billion of new customer inflows in each of July and August 2018, double the same period last year. Gains were mainly transfers from retail funds. It's therefore an opportune time to hear what the CEO is thinking. This is a transcript of her introduction at the 2018 AIST Super Investment Conference in Cairns on 5 September 2018.]

It’s almost unbelievable we’ve had to defend our outperformance over retail super funds. Our statistics have been questioned, as has our asset mix. The establishment and use of collective vehicles like IFM and ISPT have also been attacked. Decades of being on the defensive and yet continuously delivering results for our members.

But now it turns out our strongest response to our detractors has been our success. In the last four months or so, there has been a significant shift in the discourse. The Productivity Commission affirmed the profits-to-members sector's consistent outperformance and for once people listened. The message was freely accepted as fact.

Then came Round 5 of the Royal Commission’s hearings into superannuation containing a 223-page report with a strong focus on fund governance. Yet there was no significant criticism of equal representation, nor the role of unions, nor employer groups. There was no mention of the need for independent directors on our boards.

[Editor's note: 'equal representation' is where the trustees of a fund come equally from employer representatives and representatives of the fund members, usually nominated by related unions.]

Instead, structural and governance issues in the retail sector were called out. Indeed, the Royal Commission proved to be a damning indictment on the retail super funds with the Commission concluding that it was open to find that eight retail funds and related parties covering almost the entire retail sector may have engaged in over 150 separate instances of misconduct. These ranged from fee gouging, charging commissions banned under FOFA, cross-selling members into higher fee products to the snail-paced transfer of members to MySuper products to preserve both grandfathered commissions and fees-for-no-service.

The report noted that ASIC expects that compensation due to members will top $1 billion for problems relating to fees-for-no-service alone. In sharp contrast, the Commission identified two instances of possible misconduct involving profit-to-member funds out of a total of more than 50 such funds.

So we were not surprised two weeks ago amid a leadership spill in Canberra, and a new ministry being sworn in, that the Government conceded defeat on its governance legislation requiring a third of independent directors on profit-for-member boards and an independent chair. Only this morning came the announcement that the Government is also abandoning raising the retirement age to 70. Both these policy areas have been at the heart of AIST advocacy for many years and we are relieved to see some common sense come into the discourse.

Many battles have for now been won

So many of the things we have been staunchly defending seem at least for now to have been won. We are not, however, naïve enough to think that many challenges don’t lie ahead still. As everyone here would be well aware, bull markets do not last forever. While investment returns to members of profit-to-member funds have far exceeded expectations over the past year or two, this paradoxically raises the likelihood of a market downturn soon.

Another challenge for profit-to-member funds is responding to an increased focus from both the media and some super fund members on how funds are responding to ESG issues such as climate change. Increasingly, funds will need to provide more transparency around ESG investments.

Compulsory super has been around for over 25 years, and we are seeing how the unique collective approach in the profit-to-members sector is delivering value for members. Just yesterday, IFM Investors which is owned by 27 industry funds announced it was giving investors a 7.5% rebate on management fees after better-than-expected returns.

The values-based leadership at the heart of decision-making in our industry, where member outcomes are always front and centre, delivers results. But we are not complacent. The Royal Commission has signalled it will consider recommending a range of radical reforms to superannuation in its final report due next February. It has also posed some important questions.

Trustees have a special and privileged job

With regard to governance, the closing submission asks whether there are structures in the retail sector that raise inherent problems for trustees being able to meet their fiduciary obligations. AIST's answer to this is a resounding ‘yes’. Being a superannuation trustee is a special and privileged job. Trustees are the stewards of other people’s money. A trustee director cannot be focussed on returning profits to members when he or she is also having to return profits to shareholders or to prop up related parties. You cannot serve two masters and look after members' best interests at the same time. Retail trustees with their independent directors were unable to protect members from fee gouging and other misconduct. And the regulators have proved themselves unable to stop the bad behaviour.

Therefore, AIST believes there is no place for retail funds in MySuper where members in a compulsory super system have the right to expect the highest level of protection. We will be advocating this position to the Commission, to the regulators and to the Parliament. There exists now a real opportunity for us to capitalise on our outperformance, our governance structure that puts members first and to take our market lead to a whole new level.


Eva Scheerlinck is the CEO of the Australian Institute of Superannuation Trustees (AIST). Graham Hand, Managing Editor of Cuffelinks, chaired a session at the 2018 AIST Conference.

Paul Stik
September 15, 2018

Further confirmation of the slant of this sheet.
Sycophants for the Industry funds.
Australia Super has a massive influx due primarily to forced member enrolment.

Peter C
September 16, 2018

We have to face the overwhelming facts, over the past 20 years industry super has clearly outperformed for profit super funds. What this means is that ultimately members of industry funds will be better off in retirement than members of retail funds. That is the bottom line.

There should be no surprisesabout this: given over 80% of investments are in the same assets, i.e. Australian shares, international shares, bonds, cash and listed property. If you are investing in the same assets then the lower fees of the industry funds will mean they will out-perform in the longer term (Super by it's very definition is long term).

In my case, I made a conscience decision to switch into a industry fund several years ago, and a couple of years ago, move into my funds extremely low cost indexing option. It's not just a mantra, fees really do matter.

Warren Buffet get's it and when he dies the vast majority of his estate will be placed in index funds, because of the lower fees.

In the end it's all about long term performance, because that is what matters for my retirement, and as a group Industry funds perform better than retail funds.

September 14, 2018

Seems that the Industry Super Funds have been hit with a wet lettuce once again. There has been a convergence on fees between retail & industry super funds since the MySuper legislation has come in. In fact many of the Retail MySuper accounts have lower fees than their Industry Super Fund counterparts. But let's just ignore that....

There is also the issue of performance reporting. Ms Sheerlinck touched on it in her speech and brushed it off as sour grapes from a vanquished competitor, but any decent analysis shows that most of the Industry Super Funds invest in ways that would've been called into question at the Royal Commission if they had been done by the Retail Sector.

The hotly contested 'Balanced' fund space is dominated by a Top 10 that has asset allocations that look more like Growth or even High Growth funds. That's like having a V8 SuperCar or F1 rocket competing against a 6 cyl family sedan. It should be a disgrace if they didnt outperform.

Then there's the unlisted investments where you cant get information about what they are invested in, who they are invested with, not enough transparency.

And there's the question of crediting rates versus daily unit pricing & marking to market. We've seen what happens when you have large pools of unlisted assets subject to 'Trustees valuation' in troubled markets. The Trustees have kept the value of the investment at book value for up to 3 yrs before being forced to reduce the value of the holdings. Importantly, they market the performance of the fund on the basis of those asset values. So the competitors show negative or at least lower returns, members flock to the 'better performing' funds only to suffer when the Trustees can no longer avoid revaluing assets to market value.

And lets not get started on the insurance offers within many of the Industry Super Funds. Maybe in the current insurance round at the RC when they are focusing on Group & Direct insurance we will see some attention given to this, but I wont hold my breath. Then you have some funds changing the definition of their TPD cover from an "unlikely to return to work" to the much tougher to satisfy "never, ever returning to work" and selling it as a "win for members because premiums aren't increasing this year". Or changing a policy so that lump sums arent paid out in many cases and they will drip feed you the money over 5 years with your condition being re-assessed continually to see if they are happy to keep paying you. If these two examples had been implemented by AMP or Comminsure or Clearview we would have heard about it by now. It wouldve been front and centre at the Royal Commission and the media would've been all over it.

September 16, 2018

Yep,my accountant / financial planner advised that Australian Super's "Balanced" fund bordered between Growth and High Growth fund allocation, hence the returns. watch out when the market dips.

Raymond Page
September 16, 2018


On the matter of the risk profiles for industry funds verses that of retail funds, I did analysis of the largest retail funds 'Balanced' option and came to the same conclusion you did about industry funds!

Asset allocations for some retail balanced funds are just as aggressive as those for industry funds - they have had to adopt higher levels of risk in order to generate net returns (i.e. after fees) that are even passable!

September 13, 2018

Hi Graham, how can the industry funds be the enemy of the retail fund groups when they are also their biggest clients? Is it another example of the conflicts and misalignment with vertical integration when the asset management business can be looking to protect and grow the assets of industry fund members while the retail platform related part of the business is engaged in an expensive war to undermine the industry funds position as the default provider? It’s a very strange industry indeed!

September 13, 2018

The industry funds escaped the RC too easily. There was a massive focus on retail fees, but consider one example in industry funds. Most charge $1.50 a week as admin fee, or $78 a year. And many members have small balances. It might sound like a small fee but it's 3.9% on $2,000. It eats away at balances when contributions stop. One of many things not explored.


Leave a Comment:



The road to super hell is paved with good intentions

Where is the super industry heading?

On franking, all public funds are not the same


Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Welcome to Firstlinks Edition 455 with weekend update

The resolve of many investors to focus on the long term with their share portfolios is increasingly tested as the list of negatives lengthens. There is a lack of visionary policies during an election campaign and stimulatory spending is contradicting the aims of tighter monetary policy.

  • 28 April 2022

Latest Updates

In praise of our unique democracy and its sausage

For all the shortcomings of our political campaigns, our election process is the best. We are blessed with honest administrators and procedures that we all trust to hand over power peacefully, with a big snag. 

Investment strategies

Is the investing landscape really different this time?

Many market analysts argue that the pandemic has changed everything but we must judge whether the circumstances are as drastic as billed. A quick review of four major events helps decide if this time is different.


Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.


When will I retire? Economic impact of an ageing population

About 39% of the labour force is aged over 45. Intergenerational reports highlight the challenges of an ageing population and the impacts on consumption patterns, dependencies, public finances and economic growth.

The real story behind the crypto crash

The recent sell-off in the crypto market and its trigger - the collapse of the Terra UST coin - has affected many institutions either holding or trading crypto assets, including crypto fund managers.

Investment strategies

Cash is the nightingale, the bird in the hand

The bird in the hand is worth two in the bush, and it's an apt metaphor for investment choices. In 2021, as investors hunted in the bush for decent returns, demand overwhelmed supply. Cash is the bird in the hand.


Book review of 'Putin’s People' and his motivation for war

Author Catherine Belton argues Putin’s sole ambition is to hold onto power. Her book seeks to understand why Putin invaded Ukraine after he became isolated and out of touch with reality during the pandemic.



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.