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Industry fund transparency push to level the playing field

There was both despair and positivity when the much-anticipated changes to the transparency of industry super fund proposals was released recently. Both 2020 and 2021 have seen growing pressure on the industry fund sector from the Coalition government and a number of committees as they sought to lift the lid on the massive part of the economy.

Industry super funds are placed in a unique position, managing more than $1 trillion combined, and having the majority of Australians’ contributions defaulted into their control without any real input. With this sort of power comes responsibility, with recent legislative changes and investigations focusing on just that issue.

Of particular interest has been the push for greater transparency around where industry funds are actually investing the money of their members. According to reports, the sector is among the worst in the world when it comes to disclosing its individual underlying assets to investors, so the recently proposed changes appear to be a step in the right direction.

Naturally, no-one likes change and the not unexpected response from the sector was that offering complete transparency into some asset classes, like private equity and direct property, could impact the funds’ negotiating power and hence the returns of members. The sector clearly gained a win in this regard with the relevant Ministers deciding to allow the aggregation of certain asset classes in their reporting.

Transparency has always been an issue for the sector, and has perhaps been a key reason behind the lack of engagement with many of their millions of members. Transparency, on the other hand, is a key part of any financial advice relationship and in many cases it is the main reason individuals seek advice in the first place.

Every adviser will know that advised clients demand and are always given complete access and transparency over every investment they own, in some cases to their own detriment. One of the more difficult parts of engaging with new clients is that the plethora of superannuation advertising, despite the “past performance is not guarantee of future performance” disclaimers, suggests performance is the most important discussion point.

In many cases, potential clients will seek to understand the entire makeup of a financial adviser’s model portfolio before they are even engaged to provide on an ongoing basis; something incredibly rare for an industry or any other public offer fund for that matter.

Anecdotally, the contrast is incredibly sharp. Without attempting to sound negative, my business rarely loses clients but when we do, they tend to move almost solely to the top performing industry funds of the prior year. In most cases, the clients who leave sought advice on the basis that they prioritised transparency and control over their investment and even more so, were heavily involved in questioning and approving every underlying investment.

It therefore always comes as a surprise when they decide to leave for options that offer little to no insight into their underlying investment, the reasons for changes to their portfolio or offer anything in the way of control.

In this light, the growing requirements of transparency are a welcome evolution of the sector and a clear levelling of the playing field for financial advisers, with the aim being a better outcome for members.

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