The comment refers to the so-called stapling provisions of the Coalition’s Your Future, Your Super (YFYS) reforms, under which members would remain members of the first fund they join rather than default to new products when they change jobs, triggering multiple accounts and charges.
But critics say it’s another element of YFYS’ controversial reforms – the clarified duty of super administrators to do their best financial interests of their members – this can pose a challenge for the ISA and its members to launch a major new marketing campaign.
“It is illegal to spend members’ money for non-financial purposes,” said NSW Coalition Senator Andrew Bragg, a former Financial Services Council staffer representing for-profit retail funds and author of a book criticizing the mandatory super system. “It’s just useless, ego-driven, outdated propaganda.”
As part of the YFYS reforms, super trustees must justify to the Australian Prudential Regulation Authority that every dollar spent is in the best financial interests of members. The rule is being reviewed by the Albanian government and a public consultation on the issue closed on October 14.
Treasury sources told the Financial analysis in November 2020 that large advertising campaigns could be prohibited under the previous government’s clarified obligation and that any marketing expenditure would have to be “essential to prudent operation” to be permitted.
Financial services lawyer Simon Carrodus, director of The Fold Legal, said it was an “eternal question” how funds could spend members’ money on marketing without breaching fiduciary duties.
“I haven’t heard a convincing explanation yet,” Mr Carrodus said. A common argument in favor of advertising the funds – articulated by former Australian super chief Ian Silk during the Hayne Royal Commission hearings – is that advertisements attract more members, which benefits members through economies of scale. .
“It’s not a bad argument in theory, although I don’t think anyone has ever calculated the numbers to test whether it happens in practice,” Mr Carrodus said.
He said governments and regulators had put the subject of super fund spending in the “too difficult basket”. In July, the Albanian government watered down pending rules requiring funds to provide detailed lists of marketing and sponsorship expenses to members.
About $61 billion has been poured into the industry’s super funds since 2017, and industry advocates have given much credit to the long-running “compare the pair” and “we’re all in this together” ad campaigns. .
ISA chief executive Bernie Dean said the funds supporting these campaigns have grown faster than their peers. YFYS reforms should not preclude funds from advertising, given the benefits of scale it could help produce.
“The previous government’s reforms were aimed at empowering consumers to exercise choice and encouraging a more competitive system,” Mr Dean said. “Well-targeted and effective advertising has always been a natural feature of a competitive pensions market and any suggestion to the contrary is frankly absurd.”
Rainmaker Information researcher Alex Dunnin said it was “strategically smart” for industry funds to promote their services to millennial and Gen Z consumers, even though the vast majority of workers in these age groups were already invested in default MySuper funds managed by super players in the industry. .
“In recent years, some smart retail groups have reduced costs and improved returns on investment,” he said. “Industry funds are fighting back because competition has intensified.”
Mr Dunnin said the ISA should be applauded for paying attention and allocating resources to the “retirement needs of young Australians”, given the industry’s historical focus on wealthy retirees and pre-retirees.
But some critics say it’s inappropriate for funds (especially nonprofits) to promote their services.
“Industry super funds shouldn’t be wasting money on glitzy ad campaigns,” said Chris Brycki, founder of robo-advisor Stockspot, which publishes an annual list of underperforming funds.
“Every dollar spent on these campaigns is a dollar less than their hard-working members – nurses, teachers, hairdressers – will receive in retirement.”
Others say the content of super fund comparisons can be misleading. “Their short TV ad was pathetic,” says financial adviser Steve Blizard of Roxburgh Securities. “Past performance does not guarantee future performance.”
While APRA said it would carefully review superfund ad spending, it also recognized the benefits of scale for consumers.
APRA has been approached for comment.