Industry super funds stumble on to the secret of success

It is now more than six years' since the industry superannuation funds launched their 'compare the pair' advertising campaign and, as Mike Taylor reports, it appears to have exceeded even the wildest expectations of its authors.

Industry superannuation funds in the guise of Industry Fund Service Pty Ltd and the Industry Super Network would have been celebrating two significant events last week – the first was the introduction of the first of the Government’s Future of Financial Advice (FOFA) bills to the Parliament and the second was six years of successful campaigning around its ‘compare the pair’ advertising campaign.

In a very real sense it can be argued that the ‘compare the pair’ advertising campaign that started in 2005 laid the ground-work for the FOFA bills. More than six years later, there are plenty of people in the financial planning industry still shaking their heads.

And while the Federal Opposition has been sending signals that it might act to rein in the power of the industry superannuation funds, it needs to be remembered that ‘compare the pair’ and the creation of the Industry Super Network grew out of a Coalition policy initiative – the advent of choice of superannuation fund in Australia.

While the Howard Government never suggested that its choice of superannuation regime was aimed at undermining the industry superannuation funds, there were those who believed that would be the effect.

They believed that, given a choice, members would vacate the then somewhat basic offerings of the industry superannuation funds and migrate to retail funds offering a broader suite of offerings.

The ‘compare the pair’ advertising campaign was the industry funds’ way of answering that threat. What is more, the politically-hardened operatives in the trade union movement pinpointed the key differentiator between industry funds and retail master trusts – financial planners and commissions-based remuneration structures.

Having identified that ‘key differentiator’, it took only a very short step and a more than adequate advertising agency to devise a campaign which has not only lasted more than six years but which also proved to be, along with a number of other factors, a catalyst for change in the financial planning industry.

But it is worth reflecting that while the Howard Government may have triggered the industry funds campaign via its choice of fund policy, it was its own Parliamentarians who were quick to recognise the dangers of the industry funds campaign.

Sitting on a Budget Estimates Committee back in May, 2009, Tasmanian Liberal Senator, John Watson asked the Australian Prudential Regulation Authority (APRA) what it knew about “the recent prominent national newspaper and television advertising campaign undertaken by Industry Fund Services Pty Ltd, on behalf of a number of participating industry superannuation funds”.

Watson then pointed to correspondence by APRA’s deputy chairman, Ross Jones, which explained the ground rules with respect to the advertising campaign and included the statement that – “imposing marketing expenses on current members primarily to attract new members [would be] difficult to justify [under the sole purpose test].”

“Does APRA agree that this mass advertising campaign is aimed at attracting new members and/or employers to industry funds?” Watson asked.

He also asked whether APRA intended to take action to protect members’ funds being spent in breach of the sole purpose test.

APRA’s written response to the questions posed by Watson thereafter became the green light which saw the industry funds not only continue their campaign but also underpin it via the development of a marketing and lobbying structure, including the birth of the Industry Super Network.

What APRA said was that the advertising had been funded by the participating industry funds contributing various amounts to Industry Fund Services.

“APRA has ascertained that the participating superannuation fund trustees have allocated these amounts from their advertising budgets. The source of funds for the advertising budgets is the administration expense which is charged by the funds. The administration expense is disclosed to all members of the funds as part of each superannuation fund’s product disclosure statement (PDS),” APRA said.

The regulator said it had no evidence that the advertising campaign was funded from member balances (after disclosed fees and charges had been debited).

“Trustees are able to defray, out of their fee revenue, advertising aimed at attracting new members and/or employers to the funds.”

History and the statistics show that of all the movement created in the 18 months immediately following the introduction of choice of fund, it was the industry superannuation funds who emerged as the net winners from the exercise.

Within two years, while the member churn related to choice of fund had abated, the industry funds did nothing to wind back what had proved to be a highly successful advertising campaign. And, with the election of the Rudd Labor Government in 2007, the industry funds had secured an ally on the Treasury benches in Canberra.

While the ‘compare the pair’ advertising campaign and its offshoots have proved very effective, their impact on public perceptions of the financial planning industry would have been less substantial in the absence of events such as the collapse of Storm Financial, Westpoint and Opes Prime.