ISA accuses super funds of gaming the super performance test
Industry Super Australia (ISA) has accused some superannuation funds of gaming the superannuation performance test by manipulating their fees and reclassifying their investment assets.
The industry funds body has made the accusation in a statement released today in which it said it had conducted an analysis of the performance test results which had revealed how many poorly performing funds had gamed the test.
What is more, it claimed that notwithstanding the test, the gap between the best and worst performing funds had not closed.
It said that the former Coalition Government’s decision to include only one year of administration fees had made the test ripe for fee gaming, allowing some funds to reduce administration fees but hike up other charges.
Just before the inaugural 2021 benchmark 35 funds reclassified investment assets, many reduced exposures to ‘Other’ assets with a higher 5.1% benchmark while increasing exposure to the lower benchmarked fixed income (1.8%) asset class and cash.
“There may be some legitimate instances to change asset allocations, but the result was that funds boosted their test score without increasing returns to members,” it said.
“The previous government’s decision to only include one year of administration fees and, not the full eight years that all other metrics are measured, has made the test ripe for fee gaming, allowing some funds to reduce administration fees but hike other charges. “
“This fee loophole has improved the test outcomes by an average of 0.06% overall, yet it increased scores of corporate MySuper products by 0.10% and 0.20% for retail MySuper products on average.”
“Six products passed the 2022 test that would have failed if all eight years of administration fees were included and benchmarked against the median member administration fee.”
“There were 13 funds that decreased administration fees with either no change or an increase in total charges.”
“One of the drivers of investment performance is the strategy funds set to decide how they allocate capital, yet investment strategy and capital allocation are not measured by the benchmarks.”
“Instead, funds are evaluated on a benchmarked against their asset allocation. A fund fails if they fall 0.5 percentage points below their benchmark and must write to members encouraging them to switch, consecutive failure results in the fund being closed to new members.”
Oh that is RICH!
ISA, whose members class Unlisted Property, Unlisted Infrastructure and Private equity as Defensive Assets due to the low volatility are accusing others of gaming the system.
Until asset classes, and asset class exposure is defined by legislation the entire thing can be gamed, and they know it.
Everyone knows the only ones gaming the system are the union funds. Any commentary about purposely over valuing unlisted assets? Any commentary about using reserves to artificially increase returns? Any commentary on mis-labelling funds as balanced when they are over 95% invested in growth assets. This is a simple union tactic throw mud at others when you know you are in the wrong and hope it sticks.
LOL!!! pot, kettle, black ISA
Good thing that no ISA funds game the market downturns <rolls-eyes>!!!!!
Industry Super Australia (ISA) is a group of super funds in competition against each other but are allowed to pool money together to advertise against retails fund like the compare the pair ads, this is anti competitive behaiviour should be stopped by the ACCC (but ACCC like asic have a history of not doing anything like they have been paid off by ISA).
Retail and industry funds are both are master trusts but ISA get away with not targeting each others customers eg legal super vs CBUS super vs Australian super.
ISA funds are competing against each other but are allowed to pool money into one organisation ISA which in turn runs more ads political ads its wrong and they should be stopped its collusion and they even admitted it in the royal commission when they confirmed the political ads which is a breach of sole purpose test, have been called out about news daily and Me bank for not making a financial return for the investors of these two companies the members.
2021 -The payout came just weeks after the Bank of Queensland’s $1.3 billion takeover, to be completed by August, was formally approved. And marks the first dividend payment to ME bank’s industry super fund shareholders since its creation in 1994.
https://www.afr.com/rear-window/me-bank-s-last-kiss-goodbye-for-super-fund-owners-20210509-p57q9r
More rubbish on super fund fees to muddy the debate.
Many so-called “industry funds” have made exactly the same changes. And exactly as they should have. Reducing fess is just one part of the story, an asset allocation is a continual change – whether under strategic or dynamic strategies.
My most recent check of a large list of industry/retail/government funds found many of these changes. AustralianSuper has done all of the noted changes and that is exactly what you would want. They’ve done a great job.
The whole point of benchmarking is to give something to aim against. It’s not “gaming the system” to try to pass a test. That’s the whole point of a legalistic framework. Carrot and stick to get the masses to conform. And it’s working just fine and dandy. Maybe not exactly how everyone wants it to – but you can’t please everyone, and these sort of tricks and flicks are a good sign that the test itself is a bit of a game.
Industry funds have been a fantastic outcome for Australia’s superannuants. Not as good as it could have been – a universal fund with universal insurance cover and universally funded retirement deferred income options would have been the best outcome. But that was never going to happen when there are so many snouts in the trough. So we deal with what we have.
The test is based on a lie in any event. Past performance should not be used as a guide to future performance.
You seriously could not make up the foolishness that passes as a superannuation fund fees and returns debate.
Recently one of my clients presented a June 2022 Annual statement and another statement dated 21 oct 2022 from a major Industry fund. Surprise Surprise! the investment value were very similar and defied market downturn, on further investigation, found almost 40% of assets were Unlisted Property/Infrastructure/Private Equity/Private Debt/Alternative assets etc and they must be carrying inflated value of Pre Russian Ukraine conflict values. it is time all Super funds should have Mark to market underlying assets or let the Unlisted assets be valued quarterly.
Unlisted assets are a form of censorship. There is not daily value – so you are effectively making up the price.
ISA tell’s amazing BS so well, so often and so blatantly that they act as if they actually believe their own BS.
ASIC, APRA & Pollies let them do so with zero repercussions
I’m getting a quite tiresome of ISA. They can jog on.