Why the industry super funds’ reporting protocol push may backfire

Industry Super Network's David Whiteley has called for industry-wide reporting protocols, but such measures may reveal more than he intended, writes Mike Taylor.

The chief executive of the Industry Super Network, David Whiteley, was no doubt seeking to be provocative when, in early October, he suggested that industry-wide protocols should be developed for transparent and comparable reporting of investment returns.

Stripped of Whiteley’s industry fund rhetoric and its inherent presumption of moral rectitude, there is much to recommend the development of common reporting protocols. Indeed, they are inarguably long overdue and a good starting point would be daily unit pricing.

Notwithstanding common acceptance that industry superannuation funds have outperformed retail master trusts over the past 10 years, the continuing existence and acceptance of different methodologies makes it very difficult for advisers and their clients to accurately ‘compare the pair’.

The commissions debate aside, industry funds very rarely find themselves on the Approved Product Lists of the major financial planning dealer groups for the very simple reason that many have not yet adopted daily unit pricing or other commonly accepted methodologies.

Thus, just as the financial planning industry has felt itself compelled by public pressure and Government threats to embrace fee-for-service and abandon commissions, it is time for the industry funds to abandon the elements of their practices that are either outdated or less than transparent.

The global financial crisis (GFC) and the consequent plunge in superannuation returns served to raise numerous questions about the practices pursued by superannuation funds, not least around investment practices and capital adequacy.

We will never know how closely some superannuation funds sailed to the wind with respect to liquidity, but it is a matter of public record that a number of funds found it necessary to seek regulatory relief from the Australian Prudential Regulation Authority.

It is also a matter of record that some regulatory officers have been troubled by the amount of time it took for some major industry funds to report the revaluation of their direct property portfolios.

The bottom line, of course, is that Australia’s comparatively rapid recovery from the depths of the GFC means we will never know the degree to which some super funds were being stressed and whether they could have withstood those stresses.

What we do know is that many could have done better.

There is much to be said for industry-wide protocols with respect to the investment returns generated by superannuation funds and, on that basis, Whiteley should be careful what he wishes for.