Conflicts of Interest in Retail Superannuation Funds

superannuation-smsfSome interesting findings in the Annual Superannuation Bulletin released by APRA.

There is now $1.23 trillion held in superannuation in Australia, and self-managed superannuation funds (SMSF) comprise the largest proportion with 32% of the total assets. Retail Funds have 28% of the total superannuation assets. Superannuation contributions in 2010 were $107.7 billion with employers contributing $72.0 billion and members contributing $34.3 billion

SMSF’s also have the largest average account balances at $478,873 compared to the next highest in corporate funds at $90,815.

Those with money are certainly flocking to self managed super funds, which could be a function of the flexibility and control associated with SMSF. The number of SMSF’s increased by 6.5% or 26,269 funds in 2010. Given the growth and asset holdings of SMSF’s, we expect to see considerable lobbying by the retail funds and their owners to limit the role of SMSF’s and the role of accountants in providing advice in this area.

Superannuation contributions to 30 June 2010 totalled $107.7 billion with employers contributing $72.0 billion and members contributing $34.3 billion.

Related Party Interests of Retail Funds

The report also details something that we have suspected for some time, that the retail funds have very large related party asset exposures. What that means is that the there is a close link between the superannuation fund trustees and the entities managing the fund assets. For example, a large financial services group XYZ has a retail fund – XYZ Superannuation Fund, which invests its member’s assets in XYZ Australian Share Fund, XYZ Fixed Interest Fund, XYZ International Fund, XYZ Property Fund etc. The group controls both the fund and the assets that the fund invests in.

The conflicts of interest may result in decision being made in the interest of the others (XYZ) instead of members, which may result in higher fees and the non-selection of better performing investment managers.

APRA reported that the average 10 year return for retails funds was 2.5% per annum compared to industry funds of 3.9% per annum.