As Alan Kohler prepares to launch his new investment report aimed at
DIY super funds later this month, the Fairfax columnist and ABC
business heavyweight didn’t mince his words at yesterday’s Roy Morgan Research luncheon
debate about the future of super.
Kohler predicted the demise of union-backed industry funds, which
currently control more than $100 billion. This is partly
because of the structure of the new Super Choice regime and also because
unions are going to be crunched by John Howard’s new industrial laws,
although with even Dennis Shanahan predicting a backdown in The Australian today, this is by no means a certainty.
Kohler predicted the likes of NAB will buy up the major industry
within a couple of years. What happens when the first industry funds
are sold will be very
interesting because at the moment they are joint ventures between
unions and industry groups. Any decision requires the approval of
two-thirds of the trustees and the boards are structured with a 50-50
Holding Redlich partner, and man about town, Andrew Fairle, posed
interesting question about whether the trustees could legally sell out
if that would lead to higher fees and lower returns for members. After
all, they have a fiduciary duty to do what is in the best interest of
their members. However, Kohler made the point that if a union or an
employer group wanted to raise funds by selling, who could stop them?
There is an interesting argument as to whether a union should keep the
sale proceeds or distribute them to their members. It might be a very
handy source of capital at a time when unions are under attack like
Crikey suggested that with higher satisfaction rates for industry funds
revealed in this Roy Morgan Research paper and much better returns over
the past decade from their low fees approach, union funds should be in
a position to hold their own, especially if they start paying
commissions to financial planners.
Kohler countered by saying industry fund fees would have to rise to pay
for increased advertising and the inevitable commissions, and the system is stacked against them because the standard choice form requires the employer to nominate a default fund.
Given the power of big banks, Kohler predicted they will pressure
employers to hand over the super administration in the same
conversation when the client’s overdraft is being discussed. It sounds
like the hugely conflicted financial conglomerates that the
Howard government has allowed to emerge over the past decade are about
to get a whole lot bigger.