The retail superannuation industry is likely to fail in its efforts to derail Government plans for greater reporting of fund performance.

The industry’s peak body, the Investment and Financial Services Association, has mounted a rearguard action to prevent the development and publication of independent industry league tables that would reveal that industry super funds consistently and significantly out-perform retail funds.

Superannuation Minister Nick Sherry asked sector regulator APRA last year to consider disaggregating its current superannuation performance reporting from industry level to individual funds. APRA released a discussion paper in November.

IFSA, controlled by large investment companies and the big banks, responded in January with a piece of policy obscurantism that would have been at home in Yes, Minister. It was “difficult for the industry to respond directly to the questions posed the Discussion Paper,” IFSA said, but gamely proceeded to do just that, offering several reasons why league tables were a bad idea. Information, IFSA warned, could be “months out of date”. And fund-level performance was a “dangerous compromise” between current industry-level reporting and “the investment experience” of fund members, which was based on specific options for specific products offered by funds. IFSA wants to ratchet down two levels to the option level for reporting.

Given there are thousands of product options, this would not merely overwhelm APRA’s resources but generate “league tables” several gigabytes in size that would prevent effective comparisons.

IFSA also thinks the objective of fund-level reporting “isn’t clear” (what’s not clear about enabling anyone to compare your performance with someone else?) and data provided by APRA may not be “fit for purpose”.

And anyway, IFSA said, trying to pre-empt criticism that the poor performance of retail funds was partly because of the high levels of fees charged by managers, fund performance was affected by the number of products offered, the age and risk profile of members, and whether members exercised “investment choice” or stayed with a default option. Retail funds, IFSA rather unsubtly implied, have lots of members who get off their backsides and work out what is best for them financially, whereas industry funds benefit from the sheep-like tendency of most Australians to go for the default super option.

But the biggest reason why IFSA didn’t want fund-level reporting was because, well, it might be reported by those nasty media types:

The Global Financial Crisis and volatility in the Australian markets has been well-covered by the media and is broadly understood by superannuation members, many of whom would be keenly interested in information that purports to provide comparative data on investment performance.

The media understands this appetite and has been quick to cover any stories relating to superannuation and investment performance. It is, therefore, conceivable that the media and other commentators will turn the data provided within the publication into an APRA sponsored league table, ranking trusts and misrepresenting their RoA (return on assets) as the investment experience of members of products operated by those trusts.

Such an outcome risks leading members to inaccurate conclusions about the comparative performance of their superannuation. At best, it risks further eroding confidence in the superannuation system, and at worst may lead to widespread switching on the basis of data that is not intended for this purpose.

Further, any damage to the reputation of trusts that comes from the publication of this data may have an impact on the share price of the listed companies managing those trusts.

Ultimately the data, if it not represented [sic] effectively, risks creating market distortions.

So there you have it: league tables might lead to the media comparing funds, members seeing how badly they’re performing compared to others, and share prices collapsing. And we’d hate to usher in another financial crisis, right? Transparency equals instability. IFSA even offered some examples of “misrepresentation” by newspapers.

What IFSA was really saying was don’t do league tables because everyone we’ll see we’re at the bottom. There’s been no “misrepresentation”. Retail superannuation funds have performed worse than industry superannuation funds, and charge commissions and much higher fees for that poorer performance.

A SuperRatings survey in December had industry funds occupying 21 of the top 25 performing funds, with only one retail “master fund” in the group. Research from Rainmaker Information in the same period showed that “in calculating a ‘bang for working Australians superannuation buck’, industry super funds, on a dollar for dollar basis over a five year period returned $5.20 per dollar invested compared to just $1.70 for retail master funds.” Industry funds out-performed retails both in default options and in growth options.

Fortunately, APRA and Nick Sherry, who has a low profile but a growing reputation, don’t seem to have been swayed by IFSA’s special pleading. This is a Government very strongly focussed on better reporting for consumers, whether in education or aged care or grocery prices. Sherry’s office confirmed this morning the league tables would be proceeding in coming months, although the precise nature of the information offered was still being finalised.

Today, APRA called for industry responses to a proposal to make current reporting information provided by funds non-confidential, enabling greater transparency and public comparisons of performance. The Opposition, which has backed IFSA’s call for the mammoth option-level reporting, will doubtless cry foul, but it looks like the comparatively poor performance of retail funds will finally be publicly revealed by the regulator.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey