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

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Latest Updates


Stop treating the family home as a retirement sacred cow

The way home ownership relates to retirement income is rated a 'D', as in Distortion, Decumulation and Denial. For many, their home is their largest asset but it's least likely to be used for retirement income.


Hey boomer, first home buyers and all the fuss

What is APRA worried about? Most mortgagees can easily absorb increases in interest rates without posing a systemic threat to the banking system. Housing lending is a relatively risk-free activity for banks.


Residential Property Survey Q3 2021

Housing market sentiment has eased from record highs and confidence has ticked down as house price rises slow. Construction costs overtook lack of development sites as the biggest impediment for new housing.

Investment strategies

Personal finance is 80% personal and 20% finance

Understanding your own biases and behaviours is even more important than learning about markets. Overcome four major cognitive biases that may be sabotaging your investing and recognise them in others.

Where do stockmarket returns come from over time?

Cash flow statements differ from income statements and balance sheets, and every company must balance payments to investors versus investing into the business. Cash flows drive the value of the business.

Fixed interest

How to invest in the ‘reopening of Australia’ in bonds

As Sydney and Melbourne emerge from lockdown, there are some reopening trades in the Australian credit market which 'sophisticated' investors should consider as part of their fixed income portfolios.


10 trends reshaping the future of emerging markets

Demand for air travel, China’s growing middle-class population, Brazil’s digital payments take-up, Indian IPOs, and increased urbanisation are just some of the trends being seen in emerging economies.



© 2021 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.