APRA focuses on Retail Superannuation Funds

The Australian Government, in conjunction with the Australian Prudential Regulation Authority (APRA), continues to monitor potential conflicts of interest within superannuation funds, particularly those with high exposure to related-party investments. The Cooper Review, a comprehensive examination of Australia’s superannuation system, reinforced the legal obligation of super fund trustees to always act in the best interests of members.

Retail vs Industry Super Funds

Retail super funds are typically operated by banks or wealth management companies and are structured for profit. In contrast, industry super funds are not-for-profit, designed to return all profits to members within specific industries.

A key distinction is that retail funds have historically paid commissions to financial advisers, while industry funds do not. Many argue this creates an inherent conflict of interest, as advisers may recommend retail products that benefit them financially rather than serve the client’s best interests.

The Cooper Review recommended banning such commission-based advice across retail super funds, a move to improve transparency and protect consumers.

Related-Party Investments and Trustee Conflicts

One of the more concerning findings from APRA’s Annual Superannuation Bulletin is that retail super funds hold the highest level of related-party asset exposure. That is, they invest a significant portion of member funds within entities related to the parent financial group.

While trustees may argue this creates operational efficiencies, APRA cautioned that:

“While trustees may believe that this arrangement produces operational advantages, it can also introduce conflicts of interest that must be managed to ensure trustees continue to act in members’ best interests.”

The governance structure of retail funds compounds this concern, with APRA noting that 60% of retail super fund directors are also employees of the parent organisation. This blurs the line between independent oversight and corporate loyalty, raising serious governance issues.

Concentration Risk and Member Impact

As at 30 June 2010, data reported to APRA revealed that many super funds were investing more than 20% of their assets with a single entity. Such concentration increases the risk of underperformance, exposes the fund to operational risks, and may result in higher fees for members.

The implication is clear: when decisions are influenced by corporate interests rather than member outcomes, returns may suffer and opportunity costs can mount.

What This Means for Super Fund Members

If you're a member of a retail super fund, it’s important to:

• Review your fund’s investment disclosures regularly

• Ask whether any investments are made with related parties

• Understand the governance structure and adviser incentives behind your fund

• Consider alternatives, such as not-for-profit or self-managed super funds (SMSFs), if you feel your best interests are not being served

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Disclaimer:

The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.