Members paying for mega-fund trustee mistakes

There is a mismatch between the consequences for the trustees of self-managed superannuation funds (SMSFs) and those of major industry funds regulated by the Australian Prudential Regulation Authority (APRA) if things go wrong.

If an SMSF blows up, then the trustees pay the price, while this is not the case under the current rules applying to mega-funds being overseen by the Australian Prudential Regulation Authority (APRA).

That was the bottom line of a panel at Financial Newswire’s annual Advice, Wealth and Superannuation Conference in the Hunter Valley during which serious concerns were raised about the manner in which members, rather than the trustee decision-makers were paying for mistakes.

The panel included State Super chief executive, John Livanas, Heffron managing director, Meg Heffron, State Super trustee director and former Deloitte consultant, Russell Mason and Super Concepts chief executive, Matthew Rowe.

Rowe said that if an SMSF blew up then the trustee-owners could only blame themselves albeit you hope that they would not because they should be acting in their own best interests.

“However, if you end up with 20 mega-funds and one of those blows up where does that leave us?” Rowe asked.

“So if you look at this from another way around, these are systemic trust issues and if you have 20 mega funds and they are all starting to look the same and something goes wrong in some particular investment market that they are all in and there is a run on a super fund, where does that end up?” he said.

Rowe said that SuperConcepts data showed that with SMSFs, particularly if they are advised, remained relatively steady through market upsets whereas he believed from people working in larger superannuation funds that the call centres became lit-up with members anting to move to cash

He said that systemic risk exists and that a conversation needs to be had about what happens if one the mega-funds was ever to blow up.

State Super trustee board member, Russell Mason said he believed Rowe had made a good point in circumstances where, during the global financial crisis (GFC) liquidity became a significant issue with a couple of the industry funds carrying up to between 75% and 77% in illiquid assets.

“If there had been a run on money they would not have been able to pay out the benefits,” he said adding that, to its credit, APRA now looked at liquidity to ensure funds could pay benefits.

“But it is that sort of systemic risk that the regulators should be looking at,” he said.

Mason said that he believed, however, that when problems arose it should not be the members who were made to pay, but those responsible for the decisions.