For normal people, spending $260,000 on tickets for the Australian Tennis Open sounds gross and a classic case of white collar pigs with their snouts in some pretty tasty troughs. But hell, it’s ‘hard work’ running a super fund, so someone has to do it!
Yep, I’m cutting the likes of Hostplus, the “anyone for tennis?” fund that was pilloried at the Royal Commission after entertaining 120 employers representing employee contributions totalling around $4 billion.
Meanwhile, a senior executive at Catholic Superannuation Fund failed to declare that businesses associated with his brother and wife were winners of lucrative million-dollar-plus marketing contracts for the fund. This was a major breach of conflict of interest rules and the Royal Commission media junkies lapped this up as another case of super bad behaviour for super funds.
While normal people might read this and say “disgraceful!,” I’d like to put some important perspective into this stoning of these super funds.
The most important perspective is that both Hostplus and Catholic Super have been some of this country’s best performers for years (even decades) so in the really important test of delivering great returns to their members, these implied ‘devils or sinners’ are really angels, or maybe saints!
The super members of these funds haven’t been long suffering but in fact have done extremely well, which should mean they should be cut some slack. Before going on, let me show you their 3-year and 5-year returns because it’s only wise to assess a super fund over a longer period of performance.
Hostplus: 3-year 10.6%; 5-year 11%
Catholic: 3-year 9.07%; 5-year 9.86%
On a 3-year basis, Hostplus was the best in the land, while Catholic Super was 4th! On a 5-year basis, Hostplus was again the best in the country in terms of returns, while Catholic Super came in top 10 again in 8th place.
I know it’s terrible that Hostplus executives wined and dined employer customers, who then kept or put their money with the fund. However, those big-end-of-town boss’s employees got returns on their super that most Aussies only dreamed about.
Let me emphasise this: those returns are bloody great and deserving of some reward, such as a good day at the tennis!
In case you’re wondering, the fund has more than $34 billion in funds under management and more than 1 million members, predominantly in the hospitality and tourism sectors.
And believe it or not, but size matters when it comes to super. Fronting the Royal Commission, the CEO of Hostplus, David Elia, explained how important numbers are: “Relationships are incredibly important, certainly in our industry. The battle, if I can use that term, is all about the retention of default fund status,” he explained.
Building and keeping relationships with employers, who have chosen or may choose Hostplus as the default fund for employees, is essential for the fund to build scale, which helps keep fees low and investment returns high. Big numbers get funds and lower premiums on insurance. And while normal people would be shocked about these expenses, normal people are really bad at building wealth, while these tennis-going super funds have been the opposite — they’re really good.
Normal people would be surprised at a lot of things that the big-end-of-town executive gets that could be called a junket. And they’d be shocked at what doctors, lawyers, accountants, financial planners and even journalists get.
When I migrated from academia to the heady world of the media I was shocked about where I had to eat or travel to so I’d get a story or interview. And they called it work!
My biggest complaint (and I reckon most normal people would agree with me) is that if “they’re all doing it,” which is what the Royal Commission heard, then as long as they give great returns building normal people’s wealth and are generally doing a great job, who cares?
If a Hostplus member goes to the fund’s website they could:
• Find their lost super.
• Merge their super funds.
• Learn about salary sacrifice.
• Find out how to access the Government’s free money called co-contribution.
• Be shown how to contribute to a spouse’s super.
• And be educated about super.
All these free services build up the future wealth and improve the material lives of their members. If taking important employers to the tennis helps to lower costs, then I say: “Give ‘em a break!”
Maybe the Catholic Super conflict of interest story looks a bit questionable, but contracts for ‘friends’ or family happen in many businesses and sectors, and it even happens in politics and the media!
This Royal Commission is reminding me every day of the Arthur Miller play The Crucible, where a valid witch hunt is getting out of hand and raises the question that if this show-and-tell expose of finance is fair and supported by the community, why not do a Royal Commission into every big business/sector in the economy?
Don’t get me wrong, what has been revealed about charging dead people fees and the like has been important because governments have been gutless to investigate and demand change. However, when you start knit picking over big businesses and what they do to entertain clients who provide contracts, jobs and in the case of super funds, lower fees, I think we’re getting into envy.
One final point, and this is a point of law. The learned counsel at the Commission, Ms Eloise Dias, underlined that it’s against the law governing super to use incentives to curry favour with customers: “Mr Elia, you're aware that section 68A of the SIS Act prohibits a trustee of a superannuation fund or any of its associates offering goods or services to a person on the condition that the person's employees will become a member of the trustee's superannuation fund?” Ms Dias explained.
Responding to the point of law, Mr Elia came back with: “It's about education, it is about engagement. It is not an inducement in any shape or form.”
Yep, and I’ve always been a great fan of making education as enjoyable as possible because it does improve concentration.
That’s what I try for every morning on this website!
If you liked this article you'll love the Switzer Report, our newsletter and website for trustees of self-managed super funds. Click here for a FREE trial and to hear more of Peter’s expert commentary and advice.