19 July 2018
One of the world’s top experts on superannuation has called out claims from the major banks and financial services giants AMP and IOOF that it is “factually incorrect” or “misleading” to use the officially audited data, which they are legally required to file with the regulator, to judge their performance.
University of NSW Business School academic Kevin Liu, who earned his PhD investigating superannuation fund performance — and is a former internal researcher for banking and super watchdog the Australian Prudential Regulation Authority — said that the data was in fact the most accurate way to determine the performance of major funds.
“The theoretical argument is there can be many reasons for the underperformance of the retail funds … such as that analysis ‘doesn’t compare apples with apples’,” Dr Liu told The Australian.
“But we have created performance benchmarks … and this is not difficult and the methodology is not new. This systemic underperformance is not (due to) asset allocation. It’s not an investment manager’s skills. It’s fees and charges.”
Audited super-fund data provided to APRA by law shows that the biggest single-umbrella super funds operated by each of the CBA, Westpac, NAB, ANZ banks and AMP and IOOF performed vastly below market rates over the 10 years to June 30, 2017.
Those major funds have five million member accounts and hold $260 billion of the public’s money raised through the compulsory super scheme.
They have performed about half as well as the major so-called not-for-profit “industry” funds, and about half as well as super schemes that three of the major banks operate for their own staff members.
CBA’s Commonwealth Bank Group Super, which is open to CBA staff and their spouses, and which has 74,009 members with $11.06bn invested, delivered an average return of 5.4 per cent a year over the decade to June 30 2017.
By contrast, the biggest fund CBA sells to the public, the $72.1bn Colonial First Choice Superannuation Trust, which has 783,474 members, delivered overall average returns of just 2.9 per cent a year for the decade.
ANZ’s $36.2bn OnePath Masterfund, which is sold to the public via its vast network of financial advisers, and which had 949,486 members at June 30 last year, earned an overall return of 2.7 per cent a year over the decade.
However, the ANZ Staff Superannuation fund, which reported 31,688 members with retirement nest eggs worth $4.23bn, earned overall average returns of 4.7 per cent for the same period.
The major banks, AMP and IOOF have aggressively fought against this data being used to compare their performance and have provided a wide range of reasons why it is incorrect to do so.
However Dr Liu said not only were these claims incorrect, but that using this data provided “the most reasonable and accurate assessment performance” of a fund “because it reflects the overall efficiency of the firm as an independent operating entity”.
Further, APRA had long been aware this was the case: Dr Liu was the co-author of the peer-reviewed APRA paper that proved it, and contained those exact words, in July 2010.
Dr Liu, then completing his PhD on the subject, had been employed as a researcher and his co-author, Dr Bruce Arnold, was at the time APRA’s head of policy, research and statistics.
APRA chairman Wayne Byres and deputy chairman Helen Rowell have repeatedly declined to comment when contacted about these issues by The Australian in recent weeks.
In a statement, an NAB spokeswoman said it was “inappropriate and misleading” to compare its performance using the legally audited APRA data.
The data shows that the super fund NAB operates for its own staff delivered vastly higher overall average returns over the past decade than a major fund it operated for the public.
“As we have previously stressed, to compare the performance of the MLC Superannuation Fund, which is a composite view of members’ individual investment choices, to the NAB Staff Super Fund, which is one investment option, is inappropriate and misleading,” the statement said.
The major umbrella funds, or “master trusts”, operated by the major banks, AMP and IOOF, typically have many underlying “funds”.
These funds in turn have hundreds of thousands of “investment options”, which invest in the actual assets, such as cash, shares, or government bonds.