Super Review (April 2012)

T H E L E A D I N G I N D E P E N D E N T J O U R N A L FO R T H E S U P E R A N N U AT I O N A N D I N S T I T U T I O N A L F U N D S M A N A G E M E N T I N D U S T RY APRIL 2012

Volume 26 - Issue 3

Trustee boards issue proves divisive 3 SUPER FUNDS Many funds are facing weak organic growth

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12 ROUNDTABLE

ISSN 1324-5295

Why Stronger Super will be 2012’s big challenge

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Photos from Super Review’s annual charity golf day

26 EQUITIES Australian equities still reflect global sentiment For the latest news, visit superreview.com.au MANDATES

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Strong differences have emerged in the superannuation industry about the make-up of trustee boards, with barrister Noel Davis suggesting common standards should apply, writes Mike Taylor

NEWS

• The chair should be independent to ensure, amongst other things, that all relevant issues come before board meetings.

• Policy committees have never been an effective means of providing equal representation and are, generally, pointless.

Davis’ argument is strongly at odds with those of AIST chief executive Fiona Reynolds, which she expressed both during the recent Conference of Major Superannuation Funds (CMSF) and later during a Super Review roundtable.

Reynolds told the roundtable that superannuation funds were different to publicly-listed companies, and that while companies had corporations law, super funds had the Superannuation Industry Supervision (SIS) Act 1993 and trust law.

“That makes the regulations different,” she said.

Reynolds said that while the principles should be the same, the laws were different and should not be confused.

“Some funds choose to have independent directors, and if they want them and need them they should be able to have them and it should be encour-

espite strong arguments mounted by the Australian Institute of Superannuation Trustees (AIST), leading superannuation industry barrister Noel Davis insists the Government should legislate to ensure all superannuation funds operate under the same trustee model.

In a column published in this edition of Super Review (page 24), Davis claims “there is no logical basis for the existence of the current differences between retail and industry funds in the way in which their directorships are organised”.

“The applicable legislation for both models is in need of reform,” he said.

Davis said some of the areas that need to be addressed are: • There needs to be consistency in the requirements that apply to both retail funds and industry funds.

• It is not appropriate to have employer representatives in funds offered to the public.

• At least a majority and, arguably, all of the directors should be required to be people who are not associated with service providers and who don’t, therefore, have conflicts of interest in making investment, insurance and other decisions.

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Fiona Reynolds

“Some funds choose to have independent directors, and if they want them and need them they should be able to have them.” aged,” she said. “But I don’t think there should be some rule that says every fund must have one independent director, or two independent directors.”

AIST consultant David Haynes pointed to the fact that while there had been a good deal of discussion around the make-up of industry fund trustee boards, there had been little discussion around the composition of retail superannuation funds boards “where almost to a man and a woman the representatives of those boards are employees of the parent financial institution”.

APPOINTMENTS

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EVENTS

“I would suggest that there is a conflict that exists there between the responsibility as an employee and their parallel responsibility as a trustee of a superannuation fund,” he said.

NGS Super trustee John Quessy suggested that it might in fact be the retail superannuation funds which needed reform.

“What I fear is happening is that there is a situation where you did this and it was really good and therefore we are going to make it compulsory for everybody. That’s dumb,” Quessy said. SR 31

ROLLOVER

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COMPANY INDEX Received by

Type of mandate

Issued by

Amount

Five Oceans Asset Management

Custody

Skandia Investment Group

$350 million

Delaware Investments

Custody

MLC

n/a

J.P. Morgan

Collateral management

AustralianSuper

n/a

Bravura

Administration

Prime Super

n/a

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NEWS 3

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Super funds facing weak organic growth: Tria

By Tim Stewart MANY of the largest superannuation funds in Australia are relying on mergers to mask relatively weak organic growth, according to a report by Tria Investment Partners.

Tria managing partner Andres Baker said the report revealed the extent to which funds were dependent upon mergers to fuel growth in a weak economic environment.

“Beneath the headline growth numbers,

organic growth generated by net inflows remains a clear challenge. Strip away growth achieved from expensive merger and acquisition exercises and we are left with some market participants struggling to keep pace with system growth,” said Baker.

While many of the funds that have undertaken mergers are in “market leading positions”, they face the challenge of retaining their current funds under management, Baker said.

The Tria Super Funds Review examined

81 funds across all sectors, with assets under management of over $1 billion. The report is an expansion of the Tria Industry Fund Review, and allows subscribers to compare the health and position of super funds from different market segments, said Baker.

The report also includes maps of the total market, the impact of mergers, market share tables, net inflow rankings, insights and trends, and profiles of all 81 funds reviewed, according to Tria. SR

QSuper signs custody deal with State Street Providing ongoing income

QSUPER has dropped NAB Asset Servicing as its custodian and signed State Street as the replacement.

The decision to sign a new agreement with State Street came after a six-month tender process from a “range of potential custodians”, said QSuper chief financial officer Michael Cottier.

“State Street stood out from the crowd, offering quality, breadth and depth of services, advanced technology, and global capability,” Cottier said.

The new custodian will provide services such as unit pricing, compliance monitoring, alternative asset reporting and tax services for QSuper’s $32 billion in global investment assets, said Cottier.

Greg O’Sullivan

State Street Global Services vice president, head of sales, Greg O’Sullivan said State Street’s proprietary technology gave it an advantage over the other custodians in the market.

“We own the build, we own

the development, and we own the maintenance [of our technology] – which gives us incredible flexibility,” O’Sullivan said.

State Street now services around $80 billion in Australian superannuation assets. SunSuper, REST and NGS Super are also clients of State Street.

A transition plan will now take place as the custody of QSuper’s $32 billion in assets is handed over to State Street, said O’Sullivan.

“We work with the client and we work with the incumbent. Everybody goes into that process with the right attitude. Everybody’s focused on mitigating risk for the client and for themselves,” said O’Sullivan. SR

JP Morgan picks up collateral management mandates CONCERNS about counterparty credit risk have prompted AustralianSuper to appoint JP Morgan to provide end-to-end third party derivatives collateral management.

JP Morgan has also won mandates to provide collateral management services to three New Zealand superannuation funds: New Zealand Superannuation Fund, Government Superannuation Fund Authority and National Provident Fund.

Recent volatility and counterparty defaults have driven home the need for “appropriate collateralisation of counterparty exposures for superannuation funds and asset managers”, according to JP Morgan Asia Pacific head of collateral management Blair Harrison.

JP Morgan has also announced a $30 million investment in technology solutions for institutional investors in Australia, with the staged roll-out of the Global Funds Servicing Platform.

Recent enhancements that have gone live globally include: a performance engine that includes mobile iPad reporting; investment analytics and a portfolio risk system; over-thecounter derivatives risk processing; a reconciliations platform; and an application for automated processing of managed funds transactions.

JP Morgan Worldwide Securities Services chief executive Mark Kelley said JP Morgan recognised the importance of the “dynamic and fast growing” Australian market.

“Australian clients are sophisticated and they want an increasingly broad array of services from across the bank – whether that be custody and securities services or access to global banking capabilities such as structured products, research capabilities or leveraging the intellectual property of our investment banking teams,” said Kelley. SR

for retirees: Merlon

By Bela Moore SELECTING stocks based on high yields rather than the share market index will provide higher ongoing income post retirement, according to Merlon Capital Partners analyst Hamish Carlisle and chief executive Neil Margolis.

Carlisle said most investment companies chose assets based on the index weight, but selecting the cheapest stocks as measured by sustainable dividend yield across the market could allow fund managers to provide better outcomes for retirees.

He said that while traditional investment strategies may deal with the income and risk objectives of retirees, bonds and other forms of fixed income did not provide ongoing capital accumulation and therefore fell victim to inflation.

Carlisle said traditional strategies were skewed about 70 per cent toward growth assets, with the majority invested in shares and around one-third tied to fixed income investments. Merlon’s post-retirement portfolio holds approximately 40 per cent in hedged shares.

Margolis said that because the index is skewed towards the big banks and mining, stock selection based on index weight does not diversify a portfolio enough to effectively manage risk.

“The problem with that of course is you carry a lot of exposure to one sector, which is not

Neil Margolis

necessarily something that you want from a risk perspective; and you carry a large equity market risk skew as well, which again may not be what people are trying to achieve,” Carlisle said.

He said the skew towards resources and banks is the “single biggest risk” in most postretiree Australian portfolios, as traditional strategies place one third of shares in one sector which was a “substantial bet on China and…a very risky position to carry”.

Carlisle said that using options, fund managers could avoid the typical trade-off between risk and yields. He said Merlon engaged in “value investing” by selecting the top 30 stocks as measured by sustainable dividend yield.

Taking into account franking credits, Merlon has provided 3 per cent higher returns compared to traditional asset allocation strategies by “titling towards yield in the portfolio, putting in place some protection using options and increasing…equity exposure”, according to Carlisle. SR APRIL 2012 * SUPERREVIEW

4 NEWS

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Australian investment managers may Super funds regain 2011 losses, and need to review reporting processes then some

By Andrew Tsanadis

INVESTMENT managers based in Australia may need to evaluate their current reporting systems ahead of wide-reaching US-based reform, according to DST Global Solutions global head of asset servicing Geoff Harries.

Harries said that with such a large client base across a number of countries, DST Global needs to cut fairly broad when it comes to market regulation.

In regards to the taxation issues related to the Foreign Account Taxation Compliance Act (FATCA), he said it is important for Australian investment managers to have a clear understanding of United States fund structures.

Although FATCA is a US-based statute, he said the regulatory effects could have global implications.

“Within DST systems’ product portfolios there will be a larger impact on the street side of the equation, which is more the unit registry transfer agency,” Harries said.

He said the impact of the legislation will have an effect on DST’s HiTrust and Blue Door offerings.

“It (FATCA) is definitely some-

By Tim Stewart

thing that we continue to track as the regulation shapes up – in terms of looking at the implementation timeline, it will move through 2013 all the way though to 2017,” he said.

According to Harries, Australian investment managers may need to eventually add an extra level of reporting capabilities over their current processing capabilities.

He said the amount that needs to be invested to upgrade current systems will depend on the volume of exposure that investors have to the underlying position of an investment.

“There will be a tipping point where there needs to be a systematic solution as opposed to a manual processing intervention,” he said.

In relation to the Dodd-Frank Wall Street Reform and Consumer Protection Act, and its aim to make the derivatives market more transparent, Harries said there would need to be a review of derivatives operations, specifically in the area of implementing central clearing and dealing with intra-day margin calculations.

While he conceded that outsourcing middle-office functionalities “runs on pretty thin margins”, Harries said that outsourcers need to offer better services in relation to unit processing and areas of corporate actioning processing, in order to reduce operational risk and to make sure the operational controls are robust and secure. SR

Robeco launches Australian office

By Bela Moore

NETHERLANDS-BASED asset firm Robeco has announced the opening of a Sydney office focused on driving institutional sales to Australia’s domestic asset management industry. The Australian operation will be led by Stephen Dennis, former head of institutional business at Aberdeen Asset Management in Australia.

Robeco aims to translate its success in Europe and Asia to the Australian institutional investment market by focusing on alpha-oriented strategies such as sustainable and responsible investing, quantitative, AsiaPacific and alternative capabilities.

“There are tremendous opportunities in the Australian market for an established asset management firm such as Robeco, which mixes deep research with long-term client focus, an innovative product range and a proven track record,” said Tony Edwards, chief executive officer of Robeco Asia-Pacific.

Dennis, who reports directly to Edwards, will head SUPERREVIEW

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a two-man team from the Rabobank offices in Sydney.

Prior to working at Aberdeen Asset Management, Dennis was the head of institutional sales at Deutsche Asset Management in Australia.

Robeco’s Hong Kong office will leverage sales and offer operational support to the Sydney office as part of a broader Asia-Pacific strategy. SR

THE median growth superannuation fund returned 4.3 per cent in the first two months of 2012 – more than recouping the losses suffered in 2011, according to Morningstar.

The gains in the beginning of 2012 reflect the strength of growth assets so far this year, with the ASX 300 Accumulation Index rallying by 7.3 per cent and the MSCI World Ex Australia Index up 4.5 per cent, according to Morningstar.

The legacy of the global financial crisis is still looming over superannuation fund returns, with the average super fund losing 23.7 per cent over the 2008 calendar year.

According to Morningstar, the average growth fund requires a return of 14 per cent over the 2012 calendar year to fully recoup the losses of the global financial crisis.

“Over the five years to 29 February 2012, the median growth manager had an annualised return of 0.3 per cent. Ten-year figures show a modest annualised return of 4.8 per cent,” said Morningstar research products manager Peter Gee. “The best-performing growth managers over the three years to 29 February 2012 were Schroder (13.2 per cent), followed by Legg Mason Balanced (12.0 per cent), and CFS Growth (11.7 per cent),” he added.

When it comes to the top performing Australian equities funds for the year to 29 February 2012, Lazard Select came out top of Morningstar’s review (returning 5.4 per cent), followed by Bennelong Concentrated (3.7 per cent) and Investors Mutual (1.8 per cent).

The best performing Australian equities strategies for February 2012 were Legg Mason Value (6.5 per cent) and Lincoln (6 per cent).

CFS Future Leaders was the best-performing small cap manager for the 12 months ended February, returning 13 per cent. BT’s small cap strategy returned 9.1 per cent for the year to 29 February 2012, and 14.4 per cent for the month of February.

International equities were best handled by Magellan for the year to 29 February 2012, with a 10 per cent return. T. Rowe Price and Zurich Global Growth were the top performers in February – both returning 5.3 per cent for the month.

APN, SG Hislock and Challenger were the best fund managers when it came to listed property for the year ended February 2012; while Macquarie, AMP and Perpetual were top dogs when it came to fixed interest strategies for the year. SR

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Jargon an impediment to SCT urges trustees to better educate members member engagement

By Mike Taylor AUSTRALIANS are still baffled by the jargon surrounding superannuation, according to new research released by Virgin Super.

The research found that the confusion around jargon was acting as an impediment to people engaging with their superannuation.

The research is the result of a survey conducted by Galaxy Research of 1,010 Australians, and has been used as the basis of a call by Virgin for a review of superannuation industry terminology.

It said the research had conclusively demonstrated the existence of a link between jargon and consumer apathy, with three in four respondents saying that super terminology acted as a barrier to them engaging with their super fund.

Commenting on the outcome of the survey, Virgin Money commercial director David Curneen said disengagement in the face of jargon was particularly evident among the younger age group.

“A review of super industry terminology would deliver benefits to Australia, and the research demonstrates that the vast majority of Australians support his idea,” he said. SR

THE Superannuation Complaints Tribunal (SCT) has urged fund trustees to better educate their members about things such as insurance entitlements and benefits.

In the SCT’s most recent bulletin, SCT chairperson Jocelyn Furlan has pointed to the latest data on complaints handled by the tribunal and commented that, “at first glance, the figures suggest that trustees could potentially reduce complaints by almost 20 per cent by better educating members about insurance entitlements and premiums”.

“Interestingly, anecdotal evidence suggests that just as many members complain about unwanted insurance as those who complain that they are not covered, but that would just seem to underline the need for improved communication in this area,” her bulletin said.

Furlan said that it seemed to

the tribunal that targeted mailouts to “at risk” groups, such as part-timers and casuals, or highlighting sections of regular disclosures for these groups, might go some way to reducing the number of complaints that trustees had to deal with.

She said that another example of an “at risk” group was defined benefit members approaching retirement.

“It is clear to the tribunal that these members need to be better informed about the treatment of their benefits from the date their service ceases to the date their benefits are paid or rolled over,” she said.

Furlan said the tribunal was working towards providing more detailed information about these types of complaints in the future. SR

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Federal opposition targets rollover performance Mike Taylor THE Federal Opposition has sought to make the handling of fund transfers and rollovers by industry superannuation funds an issue.

The issue has been raised by Tasmanian Liberal Senator David Bushby, who has placed a series

of questions on the Senate notice paper directly aimed at determining the time industry funds take to handle rollovers and transfers, as well as the industry average.

The questions, directed at the Australian Prudential Regulation Authority (APRA) via the relevant minister, ask the status

of funds taking less than 30 days to roll money over to a different fund or to a member following a member’s request.

As well, they ask “what is the extent of non-compliance, listed by industry segment?”.

Bushby has also asked whether the industry fund sector generally takes significantly longer than

the retail fund sector in arranging and administering rollovers.

The questions appear to follow on from long-running accusations within the financial planning industry that industry superannuation funds take longer than their retail fund counterparts in handling members’ rollover requests. SR

APRA research confirms benefits of scale THE Australian Prudential Regulation Authority has delivered new research which seems to confirm the benefits of funds merging and achieving the benefits of scale.

According to the research, size definitely matters in terms of driving cost benefits.

The research, contained in a paper developed by Dr James Cummings titled Effect of fund size on the performance of Australian superannuation funds, found that larger funds, both in the not-for-profit and retail sectors, had significantly lower operational expense ratios to net assets.

It said this finding suggested that larger funds were able to spread fixed costs associated with administration and IT infrastructure over a larger asset base.

“Furthermore, not-for-profit funds with larger account balances per member have significantly lower operational expense ratios,” the paper said.

It said this suggested that not-for-profit funds with larger member balances were also able to reduce variable costs, such as those associated with member interface

and insurance claims management.

The paper said that while they benefited from spreading fixed costs over a larger asset base, retail funds did not realise any reduction in variable costs from administering larger member balances.

“In sum, this paper provides strong evidence that the performance of not-for-profit superannuation funds improves with fund size,” it said. “Based on this evidence, fund members are likely to benefit from further industry consolidation in the not-for-profit sector.” SR

IFM launches low carbon/ESG strategy

By Tim Stewart INDUSTRY Funds Management (IFM) has announced an environmental, social and governance (ESG) and low carbon strategy that draws on IFM’s indexed Australian equities process.

The new strategy is designed to help institutional investors reduce their exposure to companies that pose ESG and carbon risks, according to IFM listed equities executive director Aidan Puddy.

“A low carbon version of a portfolio can be engineered to deliver 50 per cent of the carbon emissions of an equivalently sized portfolio invested in the S&P/ASX 200 Index,” said Puddy.

Industry fund HESTA is one of the first institutions to take up the strategy, having already awarded IFM a SUPERREVIEW

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$100 million mandate.

The strategy utilises MSCI ESC Research’s quantitative dataset and research to integrate ESG factors

into the investment process, according to IFM. “We chose MSCI following an indepth analysis of a number of providers, based on data quality, coverage and methodology,” said IFM listed equities director Laurence Irlicht.

“MSCI consistently rates highly on each of these measures,” he added.

IFM director of sustainability and responsible investment, Azhar Abidi, noted the significant risks that ESG and carbon issues can create for investors.

“Listed companies face potential cost impositions from carbon pricing, as well as from poor governance, labour relations or environmental practices. In a rapidly changing regulatory environment, IFM is committed to giving investors the strategies they need to invest responsibly,” said Abidi. SR

David Bushby

ETFs superior to futures over longer term: State Street INSTITUTIONAL investors looking for longerterm exposure to Australian equity markets may find exchange-traded funds (ETFs) more cost effective than futures contracts, says State Street.

Currently, many super funds are holding their exposure to Australian equities through futures contracts – typically through an external manager – and rolling them over every three months, according to State Street Portfolio Solutions vice president Michael Putica.

“Many of our clients have them there for liquidity purposes. And the question came up: does this make sense for a lot of the super funds, because they’re giving up a lot in regards to franking credits,” said Putica.

According to a State Street Global Markets report comparing the benefits of ETFs and futures, Australian equity ETF investors can utilise franking credits associated with dividends since the vehicle is backed by a physical stock.

“Funds have been paring back and realising that there are opportunity costs of holding exposure in futures, because they are missing out on something – particularly with Australian equities, because of the franking credits,” said Putica.

“Additionally, capital gains from ETFs can also receive favourable tax treatment against futures,” according to the report.

The State Street report compared State Street’s SPDR S&P/ASX 200 ETF with the ASX SPI 200 Index Futures Contract, and found the tracking error was much higher for futures (50 basis points) than the ETF product (10 basis points).

Institutional investors can also lend out their Australian equities ETF holding to other investors to generate extra income, said Putica.

Although the State Street analysis only looked at the one ETF, Putica said the points about franking credits and capital gains could be generalised to all Australian equity ETFs. SR

10 EDITORIAL

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Remaining independent and apolitical Regulators are playing a dangerous game when they appear to be dabbling in debates rather than serving the interests of Government and policing the industry.

Mike Taylor

D

ue to the time frames dictated by Federal Government’s Stronger Super agenda, the public servants working within the Australian Prudential Regulation Authority (APRA) ought to be very busy over the next 18 months.

Indeed, the deputy chairman of APRA, Ross Jones, went to some trouble to outline to the recent Conference of Major Superannuation Funds (CMSF) just how busy his organisation would be, saying he believed that the deadlines, while tight, were achievable both for APRA and the superannuation industry at large.

As busy as APRA must be, Jones and his boss, APRA chairman John Laker must have been very disturbed to read a letter published in the Australian Financial Review from

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Tasmanian Liberal Senator David Bushby lamenting that the regulator had not delivered on range of questions and requests he had made during Senate committee proceedings.

Bushby, who has not been the least bit shy about directing criticism at APRA, suggested that the organisation should be more focused on directing time and resources towards addressing its core tasks.

In doing so, Bushby was referring to the time and effort APRA had clearly been directing towards research, and in particular, a research paper developed by Dr James Richard Cummings on the “Effect of Fund Size on Superannuation Funds”.

The essential bottom line of Dr Cummings’ research was that size matters, and that superannuation funds with scale do better than those without scale.

The abstract said: “Larger not-for-profit funds have higher allocations to investments, such as private equity and real estate, where they are likely to have a size-related advantage. Lower investment expense ratios of larger not-forprofit funds suggest that they

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negotiate more favourable fee schedules with external managers. Larger funds (whether retail or not-for-profit) realise substantial operational cost savings. However, fund size does not have an overall positive impact on the performance of retail superannuation funds.”

Followers of Cummings’ research might have recalled his contribution to an APRA Working Paper published in 2011 that found not-for-profit superannuation funds earn higher risk-adjusted returns than retail superannuation funds as a result of their higher allocations to illiquid investments – for example, private equity and real estate.

Now there is absolutely nothing wrong with a chap like Dr Cummings undertaking such research, but a large question mark ought to hang over the appropriateness of his undertaking such work as an employee, and therefore representative of a financial services regulator which ought to be beyond reproach in terms of being both independent and apolitical.

A number of questions have been raised about the role

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APRA plays in collecting data and statistics across the financial services industry and whether this ought not be a task more properly undertaken by the Australian Bureau of Statistics.

Given the nature of financial services and the value which can be gleaned from particular data sets, it is possibly arguable that APRA should retain its role in financial services statistical collections, but there seems little to no justification for conducting the type of work undertaken by Dr Cummings.

Given his background in academe, someone such as APRA deputy chair Jones might argue that contributions such as that made by Cummings hold value in terms of stimulating discussion and debate, but again, that is not the role of a regulator and certainly not one to which extensive funds should be directed.

If APRA had wanted to stimulate debate, it could have protected its independence by simply commissioning research from someone within an academic institution.

Over the past decade and a half, there has been a disturbing blurring of the lines with respect to the appropriate role of the financial services regulators – such that all too often they have sought to be players in the policy game rather than servants of

a government charged with policing the regulations.

This blurring of the lines is as much a product of bad government practice as it is of empire building and ego within the regulators themselves.

Over time, the notion of the regulators being the servants of government policy has given way to the practice of treating them as stakeholders capable of being trusted not only to interpret the law into regulation but to police it.

To date, nothing untoward has occurred as a result of the blurring which has occurred around the role of the financial services regulators, but the Gillard Government and its successors need to be conscious that while there has been intense scrutiny of the financial services industry and a significant rewriting of the ground rules, no similar scrutiny has been applied to the regulators.

In any review of the APRA and the Australian Securities and Investments Commission (ASIC), a good starting point would be determining whether the two bodies sufficiently comply with the underlying tenets which guide the Australian Public Service. Key elements of such compliance are remaining independent and apolitical.

In these circumstances, the regulators would be best advised sticking to their knitting. SR

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Stepping up to the plate PRESENT: MIKE TAYLOR FRANK CRAPIS

- MANAGING EDITOR, SUPER REVIEW - EXECUTIVE MANAGER WHOLESALE, RISK PRODUCTS, COMMINSURE RUSSELL MASON - PARTNER, DELOITTE JOHN QUESSY - TRUSTEE, NGS SUPER PETER BECK - CEO, PILLAR ADMINISTRATION DAVID HAYNES - CONSULTANT, AIST FIONA REYNOLDS - CEO, AIST

The Government's Strong Super regime remains the greatest challenge confronting the superannuation industry in 2012 – and a roundtable conducted during CMSF reveals the devil is in the detail.

MT: Okay, welcome everyone to the Super Review/CMSF roundtable. I don’t know how many people here were at the sessions yesterday with the regulators, but Ross Jones, the deputy chair of APRA, was essentially saying that the implementation timeframe for Stronger Super was very tight but immensely doable, or words to that effect – I might be misquoting him a little.

On that basis I thought I’d put that as the first question: that is, whether in fact the timeframes of Stronger Super are doable. I thought I’d throw SUPERREVIEW

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to Peter Beck, who has probably got more skin in the game than most as an administrator, so Peter?

PB: Thanks Mike. I guess we as administrators, whatever the rules are, we have got to get them perfectly right and we have got to build them into computer systems, and everyone always underestimates how long that takes. So we always ask to be given enough time between when the rules are actually finalised and when we have to implement them.

A lot of people think if they

tell you it’s coming, that you can get yourself ready to implement, but in fact you can’t really do anything until you actually know what the rules are.

So there generally needs to be more time between when the rules are completed and when we have to implement.

I agree totally it’s very tight, whether it’s doable or not depends on whether APRA, and ASIC to a lesser extent, but mainly APRA, actually finalises the guidelines and the rules in sufficient time to give us a gap to be able to implement it.

DH: All of what you say is correct Peter, but it’s also in the nature of the superannuation industry to be preparing for superannuation change where we don’t know all of the information until the change is about to happen. I recall with the implementation of tax file numbers in 1996, the requirement to notify members about the change actually came either at or before the time of the regulations about how you could contact members was advised, and there were a whole range of system changes that had to be made without

knowledge of the regulations.

It’s a very unsatisfactory arrangement, it’s certainly not something we’d want.

The position Peter puts is entirely accurate, but the superannuation industry has a tradition of actually stepping up and getting things done on time and in a way that is compliant, albeit it is with a run to the winning post.

FR: I think there’s no doubt that the timetables are very tight, and it’s a shame that so Continued on page 14

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Stepping up to the plate ☞ Continued from page 12 many things have been held up, but I don’t think we want to delay the reforms. I think they’ve been going on long enough, but that’s not to say that there might not be elements in the overall packages of the reforms that, if things don’t happen in the right timeframe, that wouldn’t need to be pushed out.

But I don’t think we want to just say ‘let’s delay everything by 12 months’ or something like that. Just let’s get moving and if there are different parts that we need to have pushed back, let’s just push those parts back.

FC: The key message that I got was that really it was about the planning and getting ready and getting the resources ready before the key dates come into place. I understand your point Peter, when the regs come out and the legislation comes out, it’s not really going to go into the detail that we expect it to go into to be able to help us run our business.

So we, as an industry, need to get together and really refine and understand the key risks that will come out of the legislation so that we are prepared, so that we can plan and have the resources available.

RM: And yet it will be the administrator that gets the blame if things don’t go right. It’s really easy, it’s easy for trustees to make a decision in a sim-

ple meeting about what My Super is like. It’s relatively easy to change the insurances, but I have sympathy for Peter’s position because the administrator has a huge amount of back office work to do, and they will be the ones that get pinged if there’s some element that doesn’t comply.

So I think there’s two very distinct groups upfront for the trustees, for the executives. I think My Super for many funds, especially DC industry funds, will be reasonably straightforward, but I can certainly sympathise with Peter’s point of view as far as the back office

compliance, which has the potential to be significant.

PB: I agree with you that we always step up to the plate and deliver, but sometimes it’s a very inefficient delivery. If we do it once and then we find it wasn’t quite right, we have to then refine, and it’s not exactly like the administrator has got big margins to actually be inefficient.

So the more time we get to prepare, the better, and we are at end of the chain, so whatever regs come up, the trustee office still has to decide how they are going to implement

We make to measure...

them. Then, when they have made their decision and they tell us, then we’ve got to implement it. So you know, the bigger the gap the better, the faster we can move, the faster we can at least nail the basics, and at least we can get on with the planning.

DH: And I guess in this case Peter it’s also overlaid with some lack of certainty about what’s going to happen in relation to account consolidation, and what impact that is going to have on administrator revenues. So you are planning for major changes in an environ-

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APRIL 2012

JQ: I find myself in the rather, almost unique position, Mike, of agreeing with people. I certainly agree with the position that Fiona put, and I have great sympathy for Peter’s concerns from the administrator’s point of view – being a trustee, what you want is your administrator to get it right. We become very impatient when they don’t, and when Continued on page 16

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ment where the number of total superannuation accounts might significantly decrease, perhaps by a factor of 10 million accounts.

☞

So people are trying to fit the rules around public companies around here. Now the principles should be the same but the laws are different, and people shouldn’t confuse the two. But absolutely, I think the principles of good governance should apply across all elements of every kind of business and superannuation front.

Governance within industry funds

MT: I will change the topic a bit, and in fact it relates to something Fiona said yesterday at the opening plenary, which was the make-up of trustee boards, and the question of whether the same rules that apply to publicly-listed companies ought to apply to all superannuation?

I knew it was a compelling question and I heard what Fiona had to say and I know what drove what she had to say, but I’d like to know what the panel thinks of the general view, particularly, I guess,

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being put out there by the FSC with their latest issuance.

What is the view of the panel on the make-up of the boards?

Should uniform rules apply across companies and superannuation funds, or do superannuation funds stand as something which are distinctly different?

FR: Well, superannuation funds are different from public companies. While public companies have got corporations law and we have corporations law, we’ve got SIS and

we’ve got trust law. That makes the regulations different.

What often comes up about trustees is that they are not independent, but when you are taking about the ASX, and you are talking about companies, the whole concept of independence is being independent of management. The directors of funds in the not-for profit sector are independent of management. They are what you would term in a public company space, well, nonexecutive directors.

...a partnership ďŹ t for the long-term.

PB: I’ll just make one point which is, I think, what makes super unique – the fact that we hold money in trust for other people. And just with my background in life insurance, life insurance is very similar to that, so fundamentally I think it’s hard to argue that superannuation and life insurance regulation shouldn’t be similar.

I think there is an argument about life insurance or money being held in trust and public companies, that they are two different levels of governance. Now having said that, when you have money in trust for someone, you actually need a higher level of governance, not a lower level of governance.

JQ: I don’t look past the solepurpose test, and that is that if you’ve got to act in the best interests of members you’ve got to know the members.

Bringing someone onto a board who has no particular background with the membership, who doesn’t know

what their aspirations are, who likely doesn’t even know what their earnings are, who doesn’t know the pattern of their work or anything else – if these are relevant things, and in our industry I think they are – then how does that help anyone?

FR: That’s right, why do you want to have people who are independent..?

JQ: Because independent, disinterested, well I don’t want someone who is disinterested.

FR: Independent of your membership, why do you want to be independent if you‌ RM: Well you assumed John, I have to disagree with you, you assume their disinterest.

One would assume that if someone is coming on the board of a company or a trustee, that they are going to be interested persons.

Secondly, all that information can be found out. If you or I went on the board of a body that we weren’t familiar with, I’m sure the initial time we’d spend doing research learning as much as we can, and there’s analytics, there’s data out there that would help you understand.

JQ: You are still fixing something that isn’t broken.

Continued on page 16

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Stepping up to the plate ☞ Continued from page 15 FR: Yes, and I think in the superannuation industry what we need to be able to have are the principles and flexibility.

Some funds work perfectly well with no other directors except those appointed on the employer and employee side.

Some funds…

JQ: By the shareholders.

FR: Some funds choose to have independent directors, and if they want them and need them they should be able to have them and it should be encouraged. But I don’t think there should be some rule that says every fund must have one independent director, or two independent directors, or let funds working with the regulator decide what are the skills the board needs? Do the people that are on the board have them? Can we get them through this mechanism, or do we need to do something else?

A lot of funds don’t just use the board to bring in different skills, they use their committee processes. So if they say, “well, we think we need some more particular skills in investments”, they might bring in some other people to be in the investment committee, or equally the administration committee, or something like that.

I’m not saying that our sector can’t do better, we can always improve what we are doing, but it’s pretty hard to argue that our system of governance doesn’t work when we are the top-performing sector year after year, decade after decade. So I think people need to show evidence, compelling evidence of the need for some radical change, and that evidence doesn’t exist.

DH: And I think it’s very telling that there isn’t an argument, a public argument, or hasn’t SUPERREVIEW

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been much of one about the composition of retail superannuation fund boards where almost to a man and a woman the representatives on those boards are employees of the parent financial institution.

I suspect that in a lot of cases they have got KPIs to maximise the profit of that parent financial institution. I would suggest that there is a conflict that exists there between that responsibility as an employee and their parallel responsibility as a trustee of a superannuation fund.

PB: You don’t see too many superannuation funds going to the wall, but a hell of a lot of public listed companies do from time to time. I would be interested in your views on that, Russell.

RM: And I agree David, and I think just because reform is suggested in one sector, other sectors shouldn’t be excluded.

I agree with you, I think in the retail space there are clear conflicts of interest that need to be addressed.

I think we, in the wholesale industry, have to be careful however about the perception out there, and that we are fighting back against something that might not necessarily do any harm. I’ve been involved with a number of funds that have got independent directors, and certainly it hasn’t detracted from the performance of the board.

So if I’m a member of a fund, do I perceive that having an independent there gives me a bit more security? Perhaps, someone who hasn’t got a vested interest on either side. As I say, with the funds I’ve seen there are a number that have got independent shares that works well, or an independent director who brings a set of skills that doesn’t exist on the board.

At the same time I agree with you, a reform of the entire su-

perannuation industry, including all sectors, retail, is something on the government sides of things that the government needs to look at. I do agree with.

“What I fear is happening is that there is a situation where, ‘you did this and it was really good, therefore we are going to make it compulsory for everybody’. That’s dumb.”

– John Quessy

PB: I think we are singing off the same hymn sheet. The life insurance companies too, just to make sure they don’t get missed. Life insurance companies always have had independent directors, for a number of years now. I don’t think the superannuation funds, their responsible entities, have got independent directors in retail – I think that’s what you were talking about. I know there’s a move, and I don’t think the retail funds are resisting putting independent directors…

JQ: Some retail do have independent directors, there’s a mixture and I know some out there do. It works well, it would be nice to see it …

PB: Absolutely independent is the wrong word, when we talk about this and get emotional.

It’s about conflicts, so maybe the definition needs to be turned around and to talk about directors who are not conflicted.

JQ: There’s an assumption that there’s a conflict, or a conflict of interest. If there is example of that I want to see them. No one’s been able to produce them.

DH: There’s the issue in retail, where the executives or directors of a company are conflicted…

PB: I was suggesting that if NGS Super, for example, said, ‘We are going to change our board and it will be made up of the CEO, who will also be the chair, and the operations manager will be a trustee, and the marketing manager will be a trustee’, there would be an enormous hue and cry. And that’s exactly what happens in the retail sector, it’s somewhat…

JQ: So it’s probably the retail sector that needs reform? It’s not this sector? I mean, we have the capacity, and sometimes some industry funds have done it, to either appoint independent chairs or other directors – and as Fiona said, to pick up perceived missing skills at an investment committee level, if that’s where you think you might be lacking, or insurance, or whatever it might be.

Those capacities exist and are utilised by some funds from time to time. If it works for them, that’s great, but what I fear is happening is that there is a situation where, “you did this and it was really good, therefore we are going to make it compulsory for everybody.”

That’s dumb.

☞ Continued from page 14 there’s a need for tinkering after the event, and there will be because it’s going to add costs, there’s going to be mistakes, it’s going to be frustrating.

We just know all of those things and it’s doubly frustrating to be sitting here at this stage knowing that there is a huge likelihood that there’s going to be a bit of a mess. It will be delivered, it will work, but it won’t be perfect first time.

Well, it would be great if it is, but I don’t have that sort of faith, and people will start getting very cross with each other because things are not quite the way they should be. Then I think there’s another dimension from the administrator’s point of view. The administrator is going to be dealing with X number of funds, all of whom want something slightly different, and they’ve got to get that into their platform. I don’t want to be an administrator.

FR: And it may be the things around administration that need to be pushed out.

JQ: But I certainly agree, I think we’ve all had enough now, it’s pick a date and let’s just go.

DH: But there is a third element to all of this, and that also adds to both the benefits and the challenges for administrators, and that’s the implementation of SuperStream, which will also be rolling out through 2013, 2014, 2015, and that will also involve major administration changes. So just in the few minutes that we’ve been talking about it, we’ve been talking about three very significant, but very different changes, each of which is going to put significant pres-

sure on administrators.

PB: I agree.

DH: However, if we zoom out it’s not just a matter of the difficulties of change, it’s also a question of putting this in the context of the Government legislating to increase the amount of mandated contributions that come into the system, the government putting superannuation at the same level of prudential regulation as banking and insurance, and helping the industry to actually have administration platforms that will be world-class and will lead to savings of billions of dollars a year.

So it’s not all doom and gloom, in fact it’s the opposite, it’s an enormous opportunity for the superannuation industry as it matures.

AUTO-CONSOLIDATION – HOW HARD WILL IT BE? MT: Well, one for the insurers and I guess and the administrators again, is the question of auto-consolidation: and I say for the insurers on the basis that at a previous roundtable, I think last year, where we had the argument that said a lot of people had multiple accounts simply because they wanted to maintain some very seriously good insurance benefits. So I just ask, have they got the framework right for auto-consolidation? Or do you think there still needs to be some tinkering at the margin?

FC: Right, I think going back to the point I raised earlier, there isn’t anything in the legislation that’s going to outline exactly how the auto-consolidation will occur from the insurance point of view. The two or three key risks in there are, once it moves to 1,000 [dollars] it’s generally fine, because I think that with the auto-consolidation of accounts less than 1,000 there won’t be

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too many accounts there anecdotally which will have the insurance impacts.

It’s once it moves to 10,000 that I can see that it will have a major impact on those accounts where members have multiple accounts. The question really is around, ‘so what will be the process?’

What will be the process that will be followed when those auto-consolidations of those accounts occur from an insurance point of view?

If you look at the process today, you’ve got eight or nine insurers out there and they all offer this choice of where members can consolidate their insurance balances; but if you look at all the process it’s eight different processes and there’s no one uniform way of actually consolidating insurances today. Behind those eight insurers there are about six or seven different reinsurers who have different practices again, and will influence the way auto-consolidation occurs today.

So for me, the first point is about the process. The processes aren’t uniform and that’s going to be one of the major hurdles that we will need to overcome as an industry in terms of getting all together and ensuring that we’ve got a uniform individual transfer process.

The second would be, yes, obviously through the administration, Peter. I mean the pressure will then come back through to yourselves as administrators in terms of what will happen when consolidation occurs, but the third biggest point would be more around [the question], “so when does insurer A go off risk when that member decides to make that choice and move to fund B under insurer B?” So in terms of the benefits provided, if they can transfer the insurance across, when does it go off risk from insur-

“The administrator is going to be dealing with X number of funds, all of whom want something slightly different.”

– John Quessy Russel Mason

er A to insurer B? That’s quite easy when we are just talking about death cover, but when we are talking about terminal illness and TPD and IP, that’s where the devil in the detail starts coming through. It’s going to be a major challenge for the industry to outline when risk moves from insurer A in fund A, to insurer B in fund B. So… PB: Yes, so I will agree with Frank, auto-consolidation is probably going to start quite easily. I’ve got to say I don’t like the word auto-consolidation because it leaves out the fact that the member, the client, has the option to opt out, so maybe it should be called “opt-out consolidation” or something to convey that it’s not just automatic, that the members do have a choice to opt out of consolidation.

I think that the first round will be reasonably easy because the insurance will just be cancelled as far as I can see. It’s when it starts getting to significant amounts that it becomes a member issue in terms of what we do. I think perhaps the insurance industry has got to do some work to figure out how it can be transferred between insurers, you know?

DH: I don’t think it’s too late for those discussions to take place. The mechanics of con-

solidation and auto-consolidation are not strongly developed beyond the framework of the different elements that are involved in it. As you say, the consolidation of less-than$1,000 accounts will be relatively straightforward, although I think they account for something like 16 or 17 per cent of all of the accounts in the industry, so again it will have a significant impact on administrators, but not so much on insurers.

One of the purposes of the first round is in fact to see what impact it has on a number of accounts, and for the Government and the industry to be able to review what the outcome of that exercise was. Associated with that of course is the whole question of the treatment of insurance. I’m a member of the SuperStream working group and that was one of the most vexed discussions within that group.

Insurers weren’t represented significantly on that group, and I think there is a pressing need for the government to get together with the insurers to actually work out what the most appropriate way of consolidating larger accounts is in a way that doesn’t lead to distortion or misuse.

For example, one of the options with auto-consolidation of larger accounts is to flag accounts. It sounds like a terrific idea, but if you have flagging operate at the time when a person joins the fund, people will have low balances and that account will be stuck there, so you will have the same situation.

Whereas if you have flagging which is introduced a few years down the track, well then don’t you have an additional administrative issue?

So there are very significant issues, but if anyone says, “this is what’s going to happen”, Continued on page 18

☞

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Stepping up to the plate ☞ Continued from page 17 or “that’s going to happen in relation to insurance”, when you are talking about larger account balances, they are talking from a position of certainty or correctness, that will become clear.

Finally, the $10,000 limit that people are talking about, that too is not a fixed amount.

The position of AIST in fact is that the final position with auto-consolidation of those accounts should be uncapped, because the aim of this exercise should be actually to facilitate the consolidation of all accounts, not just the minority of smaller accounts.

That is also consistent with the Government position, which says that the subsequent exercise will be the auto-consolidation of accounts with balances of at least $10,000.

FR: And funds should be doing a lot of work on using the TFNs now, already. They should be doing a lot of work on matching up members within the fund. They should be trying to find tax file numbers for members that they don’t have tax file numbers for.

They should be doing a whole lot of pre-work now, because they actually want to keep those people in their fund, and we think at AIST that the funds aren’t doing enough pre-work on things like this and are underestimating what the potential downside can be from some of these reforms, and from losing so many members. So when we talk to funds we are encouraging them to ‘don’t wait for later, be doing now. Get in ahead of the game’.

PB: This is a good example of administrators having to be the end of the line, because with auto-consolidation, we’ve been talking about it for two years and in principle no one can disagree with it. But the devil is SUPERREVIEW

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“The mechanics of consolidation and auto-consolidation are not strongly developed beyond the framework of the different elements.”

– David Haynes Peter Beck

in the detail, we’ve actually got to figure out now how we are actually going to do it.

Consolidation within the funds is relatively easy. I don’t have much concern about that, but the rule, and the simple rule, is that at less than 10,000 [dollars] the insurance is going to be cancelled, because I don’t think we’ve got any other choice. Again, we can deal with that so we sort of know where we are going.

But as soon as you get to more than that, we start running into this issue about insurance, and it’s going to be quite a lot of work for the insurers to come up with transfer terms, right? And until we’ve got transfer terms we don’t know how that’s going to work, so we can’t actually build that transaction to do transfer terms until we know what the rules are going to be.

FR: Well, I would suggest to the insurers that they should very quickly get together, because if they don’t the Government will come along, and having worked with the Government through MySuper, Stronger Super and SuperStream, you don’t want the Government coming anywhere near it, or three years later you will be sitting here having this conversation about this very complicated process that’s been designed for you.

PB: Let me make a final point there, which is the rub: there’s an assumption that if we auto-consolidate a million accounts, we are going to save a million times $50 in administration. Well, that’s just not so. A lot of these are just passive accounts and no work, or hardly any work, is done on them, so the saving is not going to be anywhere near the amount.

JQ: The potential for complaints will just go through the roof.

RM: Yes and...

JQ: I’m a huge sceptic.

PB: And complaints and more work for less money, that’s the bottom line. So the savings: there are going to be some savings, let’s not get too carried away, but the savings aren’t going to be anywhere near the size that’s been put out there.

DH: Well, I would take issue with that in relation to the first round. I would suggest that accounts worth less than $1,000 generally derive fees for all concerned at a level that is significantly greater than the cost of maintaining those accounts.

the opposite. We are collecting $50 for all of these accounts, but we are not actually doing any work. So the work is not going to change, but we still have to get the $50 from somebody, and so the $50 is going to be spread across the rest of the client base, that’s what I’m saying.

FC: The other point on the costs as well, Peter, is that from an insurance point of view we talked about individual transfers at the individual level, and at the aggregate, at the fund level. Once the membership profile changes for a particular fund, whether it’s down or up, or even if it stays neutral but the actual membership profile changes, that’s going to have an impact on the insurance risk.

Then from that comes: what will be the insurance premiums charged going forward? A lot of that information again will require assistance from administrators to provide us with the data, and then the insurers to do the analysis going back to yourselves, to actually implement the new change. With the auto-consolidation will come a change in product design, so it’s not just the premium that will be impacted, but a change in product design and a change in processes will also come forward as well.

FC: I agree with that.

DH: Because the level of transactions and activity that’s involved with holding an inactive account for which you don’t hold an address is actually very low. The issue which you raise becomes relevant when you talk about accounts which actually involve the production of member statements, the posting of those member statements, talking to someone on the phone about those accounts.

PB: No, actually I’m saying

PB: That’s true. I think we are definitely going to see a move to more asset-based fees because of this, the fixed dollar fee, and we are sort of going around in circles on this thing.

As administrators we are quite happy with the activity-based fees, we think that’s the right way to go and it’s the fairest way, but we can’t just absorb additional costs without actually getting additional revenue. So I would suggest that a lot of funds will move more to asset-based fees, which to pick up Frank’s point is

another product change that’s going to come.

MT: John, Russell? You are very quiet there.

JQ: Well I’m on record, I’m a huge sceptic. I’ll just wait and see what happens, but I don’t think people are going to take very kindly to being forced all over the place, being pushed around in this way.

RM: We’ve got to get back to basics. Why was auto-consolidation brought in? Auto-consolidation is great for the 23year-old who has worked at half a dozen different jobs, and has had a couple of thousand dollars here, there and everywhere.

He’s got different funds and forgotten or lost that money, that’s what it was all about – not for people with $100,000 in active balance to have that money moved or their insurance threatened. I think whatever regulations the Government brings in they’ve got to get back to the first principles, to why we all thought auto-consolidation was good in the first place.

And what I hear from Frank and Peter, we don’t want the complexities to overtake the practicalities of getting small account balances consolidated with the member’s current fund. I think that’s what we should be focusing in on, and if someone’s got a $20,000 balance sitting there, we’ve got a valid address for them, they get a statement twice a year from Peter saying that this is the balance, these are the fees coming out, and if they are happy with that they should be left alone.

FR: Well, a lot of it is about what is the definition of the person who is not active. So it’s going to be a key in identifying people. But I’ve seen people with very high bal-

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ances being in AusFund, from being on the Board, and it’s lost, you know? So it does happen, and I think in some ways the industry has a little bit brought this on itself.

There could have been a lot more done about people who were hanging on to balances that they shouldn’t have been hanging on to, about taking fees from [them]. I think there’s an expectation in the community that this is a compulsory system and it should be much easier for their money to move around: ‘The government is forcing me to put this money into a super account, my boss does it for me’ – that is about the level of interest until the account balance has built up considerably. So all these things should just happen.

DH: Well, let me just throw a few figures your way, Russell, to support what Fiona is saying. There are five million lost accounts, five million. There is $20 billion worth of lost superannuation money, $20 billion. I don’t know where you guys come from, but $20 billion is a lot of money for me.

There are 28 million superannuation accounts for a working population of 11 million, but probably the killer stat is that each year there are 1.3 million new superannuation accounts created for a net workforce increase of 200,000, what does that mean? It means there’s probably something like a million unnecessary superannuation accounts, all of which have fees associated with them being created every year.

That situation cannot go on.

There needs to be a mechanism to actually align the number of accounts that exist with the number of accounts that are needed, and in doing so we need to be cognisant of the financial and operational position of administrators.

We need to get the insurance

“The most recently active account was the one that was the default for consolidation. After consolidating hundreds of thousands of accounts, we received basically I think no complaints about that from members.”

– David Haynes

Fiona Reynolds

arrangements correct, but fundamentally we need to get the operational and policy settings right, so that insurance maintains credibility with the people who say, ‘Oh Jeez, I’ve got seven or eight accounts out there and I’m paying $150 on each of them.’ That doesn’t help the credibility of…

JQ: Can I ask you then what you think is the number of accounts that is needed?

DH: Well…

JQ: Is it one per person? Two? DH: A number of people have done studies on the number of necessary accounts [Australiawide], and they’ve come up with various conclusions of between 14 million and 18 million. I thought the 18 million estimate was the most generous and overstated because there was quite a lot of double counting within it.

JQ: So that’s about 1.5 per person?

DH: However, that’s still 18 million accounts and there are 28 million in existence, so even on that very generous assessment, there are probably 10 million accounts more than are necessary in the system.

PB: Can I just make a point that the solution for additional ac-

counts is not just all about consolidations. It’s when people take up new employment, about what they should actually do, and at the risk of offending Fiona I think there was some ASFA research which actually says more and more people are actually keeping their existing account.

I was quite astounded by that statement, but I think it was about 70 per cent. I don’t carry numbers in my head, but I think it was about 70 per cent of people are now actually keeping their existing account.

FR: I just find as an employer myself – and yes, I employ people who work in super, but a lot of people I’ve employed have never worked in super before – I find that more and more, nearly everyone now brings their account with them, ‘this is my account’.

PB: I can look that up for you, but I’m pretty sure the latest ASFA research said something like 70 per cent of people actually are keeping their existing account, which actually astounded me. I thought it was much more heavily the other way.

JQ: I was always interested to watch, but I was never able to get any reliable figures when choice in super was first introduced, whether people would in fact choose, in terms of which fund – they have multiple funds – which one would they elect to make their principal fund? Would it be the one that was just associated with their current industry, or was it the one that had the biggest balance?

And no one was ever able to tell me the answer to that.

But I think that would have been particularly instructive to know, because what Fiona is saying I think is that, most Continued on page 20

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Stepping up to the plate ☞ Continued from page 19

So we’ve got to have clear rules about this, that’s the most important thing, and we need legal protection for what default rules we implement.

likely, people are now bringing their favourite fund with the biggest balance and making that mobile.

JQ: Let’s not just have clear rules, let’s have a simple language where everybody calls the same thing by the same name and gets rid of some of the confusion. I mean, I’ve harped on about this, but why can you call any particular investment option whatever you want to do? Now there’s rules, and you can’t use words like conservative unless it’s whatever, but you can still have, well, a diversified account and exactly the same accounting in a competing fund and it’s called a balanced account. It’s just there to confuse people.

Income protection insurance or salary continuance? It’s the same thing, but people think they’ve got two different things because the industry does nothing to help, nothing. In fact it works almost as though it doesn’t want people to understand, let’s make it very, very complex. So bite the bullet on all of this at once, and when you get all the insurers together to talk about autoconsolidation, talk about using the same names.

FR: Well I think a lot more people are, yes.

PB: I think the research says 70 per cent of people who change jobs are electing not the new super for that employer, but the one they’ve got.

DH: Coming back to your point about addressing the situation at the point when people change jobs: that in fact is part of the consolidation package.

At the point of enrolment, it is anticipated that there will be a process to facilitate consolidation, and it is quite likely that that process will be a combined TFN declaration form, choice-of-fund form and consolidation form.

So people at that time will not be forced, but will be encouraged, they will be given the opportunity to tick a box to commence a process, of consolidation of their existing accounts either into the employer-nominated fund, or their existing fund.

FR: And that would have some sort of declaration about insurance too, that ‘you have acknowledged that there may be some changes in your benefits’, blah, blah and legal…

PB: The critical issue is, what’s the default for that? Because if the default is going to be the one that most people want when they don’t fill the form in, [the form] comes to us as administrators and we’ve actually got to have a default for that.

My understanding is that the default is actually going to be the new fund, new employer.

FC: New employees fund.

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DH: Yes, it’s proposed to be.

And in relation to your question John: sorry, I used to be chief executive of AusFund, which specialised in looking after small, mostly, and inactive accounts and so it’s my favourite subject…

FR: And he can talk about it for hours and hours…

DH: The answer – and when we did consolidation exercises, the rule of thumb that we used – was that the most recently active account was the one that was the default for consolidation. After consolidating hundreds of thousands of accounts, we received basically I think no complaints about that from members.

FC: John raised a good point earlier when he asked what is the ultimate number of superannuation accounts that we should have. I mean if you look at other financial services products, what’s the average number of mortgages someone has, or the average number of savings accounts someone has?

Is there..?

JQ: It seems there’s almost an ulterior motive, because we have – this is me taking off the trustee hat and putting the trade union hat on – we have a mechanism by which we can deny people a choice of fund, because you can do that through registering industrial instruments, by naming two funds and saying ‘and any other fund, any other complying fund that the employer offers’, and the employer doesn’t offer any other complying fund.

So people can have an argument with their employer, but there’s two funds here that are mentioned in the enterprise agreement and you get a choice of those two.

The employer just says “no” if you want to bring your fund in, “no, these two, you pick.”

And it’s quite legal.

So this is a potential problem because you’ve got somebody who has already got perhaps two funds, one of which is their favourite fund, and they have come into an industry where they potentially are going to have to have a third one.

Now they might just let the

David Haynes

balance rise for a year or two and then transfer the bulk of it, but most won’t, they’ll probably just end up with three funds, or four, depends on the nature of the industry. Where there are several industries doing a similar thing, and people drift between them, autoconsolidation is never going to work for them.

DH: I reluctantly rise in defence of APRA here, in that I do recall that Ross Jones talked yesterday about a parallel process that is underway about labelling and statistical collection, which AIST is involved in with APRA, about addressing exactly that problem John, but as you say, it’s probably about 10 years too late.

JQ: Yes, very much.

PB: We definitely need, we’ve got to have clarity of rules, because otherwise if members die their spouses will be saying ‘where’s my money?’. If they survive they will say ‘why are you taking insurance from me?’.

MT: On that note, thank you ladies and gentlemen for participation in the roundtable – and we always end in furious agreement about something.

So thank you very much. SR

SUPER REVIEW GOLF DAY 21

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Charity Golf Day in support of the Emerge Foundation The annual Super Review Charity Golf Day was held at Sydney's Roseville Golf Club in mid-March with around 60 golfers teeing off in support of the Emerge Foundation. The winners on the day were the Pillar Team with the individual prizes going to Noel Davis and Maxine Khouri.

1

1. Ben Smith – BT Financial Group, Michael Gillard – BT Financial Group, Martin Kelly – BT Financial Group.

2. Alex Masters – JP Morgan, Nick Paparo – JP Morgan, James Manning – JP Morgan, Doug Roberts – Super Review.

3. Noel Davis – Pillar, Adam Gee – Pillar, Col Gellatly – Pillar, Chris Woodward – Pillar.

4. Craig Hobart – Tyndall, Rob Mcgreggor – Tyndall, Lee Frankish, John Berry.

5. Richard Gilbert – Rolia, Brett Jolie – Aberdeen, Zeina Khodr – Super Review, Phil Hart – Legg Mason.

6. Guy Cotter - CA Financial Services Group.

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3

5

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6 APRIL 2012 * SUPERREVIEW

22 SUPER REVIEW GOLF DAY

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Charity Golf Day in support of the Emerge Foundation 7. Maxine Khouri wins the Leading Lady Award.

8. Pillar team holds their trophy up.

9. Noel Davis wins the Leading Man award.

10. Shree and Indy Singh, Frank and Maxine Khouri.

11. Bruce Murphy – BNY Mellon, Tom Burns – Abi Group, Rob Plour – UBank.

12. Chris Richards – Pillar, Yane Tupanceski Pillar, Bill Moris – Pillar.

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9

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11 SUPERREVIEW

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APRIL 2012

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24 TRUSTEES

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Independence vital for super Trustee governance has become a hot political topic.

Barrister NOEL DAVIS examines the issues and argues there is no basis for differences between industry and retail funds.

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he governance of trustees of superannuation funds has become a contentious issue. It has been argued that governance should be improved so that there is a similar standard to that which applies to listed companies.

Amongst the increased standards being suggested is that trustees should have a majority of independent directors, that the chair should be independent and that there should be disclosure of directors’ fees and remuneration of executives of the trustee.

Currently, there is a significant difference between the governance of retail and industry funds. Both models have issues that need to be addressed.

Retail funds operated by financial institutions generally have executives of the institution as directors of the trustee, with – in some instances – some independent directors.

Industry funds usually follow the equal representation requirements of the Superannuation Industry (Supervsion) Act (SIS Act) by having an equal number of employer and member or union-nominated directors.

Such a difference in determining directorships does not make any sense when both types of funds are generally on an equal footing, in that membership of both is offered SUPERREVIEW

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to members of the public.

The reasons for the difference in approach are essentially historical, but are no longer relevant.

Under the SIS Act, a fund that is offered to the public has to either comply with the equal representation requirements or have an independent trustee.

Retail funds operate under the ‘independent trustee’ requirement, with the consequence that they are required to form policy committees for many of the employers that contribute to the fund. Such policy committees must comply with equal representation requirements, but have been notoriously difficult to form and manage.

Employer policy committees are supposed to advise the trustee on issues that relate to members employed by that employer, but everyone in the superannuation industry knows that policy committees have been almost entirely ineffective. They are not, therefore, an appropriate means of providing equal representation in retail funds.

Another issue with the way in which the directorships of trustees of retail funds are organised is that any executive of the associated financial institution who is a trustee director has a conflict of interest in deal-

ing with the investment made by the trustee in an associated company, and with issues that arise under an insurance policy that the trustee invariably has with an associated insurer. For example, if the associated insurer has rejected a disability claim, the executive has a clear conflict in determining whether the trustee should take issue with the insurer’s decision.

Directors with such a conflict of interest should not participate in deliberations on the matter.

Of course, conflicts of interest can also arise on the part of directors of industry funds.

Sometimes they invest with associated entities of the trustee.

Directors with a conflict of interest should not participate in decisions to make such investments. Directors may also have conflicts in relation to other service providers.

In relation to the equal representation model that most industry funds follow, it can be well argued that, because of the effect of the choice of fund regime, the public offer status of most funds and the responsibility that trustees have to fund members, it is no longer relevant or appropriate to have employer representatives on trustee boards.

It is also arguable that, as all trustee directors are required

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trustees by the SIS Act and trust law to act in the best interests of members, it is no longer necessary to have member representative directors.

Some attempts have been made to bring about reform.

The Super System Review (the Cooper Review) recommended that equal representation on trustee boards should no longer be mandatory. That recommendation has not, at this stage, been taken up, but the government is considering what legislative changes should be made.

The Cooper Review also recommended that, if there is not equal representation, there should be a majority of non-associated directors in the sense that they shouldn’t be associated with sponsors of the fund. A further recommendation was that, if there is equal representation, one-third of the member representatives and one-third of the employer representatives should be non-associated people.

The Financial Services Council, which represents retail superannuation funds, has adopted a policy that, from 1 July next year, its members’ funds have an independent chair and a majority of independent directors.

That development is commendable, but it would still permit executives with the conflicts of interest referred to above, to be directors. However, where they have a conflict, at least there will be a majority of the board, the independent directors, who can participate in voting on the decision.

The two-thirds majority re-

quirement of the SIS Act may require reconsideration in light of this development.

CONCLUSION For the reasons stated, there is no logical basis for the existence of the current differences between retail and industry funds in the way in which their directorships are organised. The applicable legislation for both models is in need of reform.

Some of the areas that need to be addressed are: • There needs to be consistency in the requirements that apply to both retail funds and industry funds.

• It is not appropriate to have employer representatives in funds offered to the public.

• At least a majority, and arguably, all of the directors should be required to be people who are not associated with service providers and who don’t, therefore, have conflicts of interest in making investment, insurance and other decisions.

• The chair should be independent to ensure, amongst other things, that all relevant issues come before board meetings.

• Policy committees have never been an effective means of providing equal representation and are, generally, pointless. SR Noel Davis is the author of The Law of Superannuation in Australia and is the editor of The Australian Superannuation Law Bulletin, both published by LexisNexis.

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Dealing with global sentiment Australia’s economic fundamentals may remain relatively sound, but as Damon Taylor reports, the performance of Australian equities has continued to reflect the sentiment generated by global events.

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mongst any number of global economies which continue to falter, it seems clear that Australia can still be considered ‘the lucky country’ when it comes to the strength of its economic fundamentals.

Unemployment is low, inflation has been well controlled, debt is negligible and yet the reality, according to Paul Taylor, Head of Australian Equities at Fidelity, is that Australia remains affected by what is a very macro environment.

“We seem to take two steps forward, two steps back, and the market goes nowhere,” he said.

“It gets depressed about sovereign debt issues in Europe, Greece potentially defaulting or restructuring, and then the disaster comes off the table and we take two steps forward again.

“We’re really in that sort of macro bounce that can only be described as risk on/risk off.”

Robert Van Munster, head of Equities for Tyndall, said that for investors in the Australian equity market, performance over the past 12 months had been disappointing.

“And that’s particularly the case when you compare it with our international peers like the United States,” he said.

“Their economy has been much weaker, their debt is a SUPERREVIEW

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lot larger, unemployment remains a lot higher - and yet, their share market performance has been better than ours.

“Even if we look back to periods where the Australian market has fallen more than 50 per cent in a year, and that would include 1927, 1973, 1980, 1987, and then look at the rebounds post that this market recovery is the weakest,” Van Munster added. “The question, of course, is why?”

But while he acknowledged that investors – institutional and retail alike – were scratching their heads as to why the Australian share market’s recovery had been so weak, Van Munster said that Tyndall was attributing it to a number of factors.

“Firstly, it’s the strength of the Australian dollar which is corroding international competitiveness and translating into weaker foreign earnings,” he said. “It’s adversely affecting Australian retailers, particularly those with cross-competition coming from the internet.

“The second factor is a lack of productivity growth in Australia,” Van Munster continued.

“We have productivity growth running at less than 1 per cent and wages growth running at circa 4 per cent, which obviously impacts the bottom line of Aus-

tralian companies.”

According to Van Munster, the third and final aspect was the emergence and persistence of a two-speed economy within Australia.

“Our economy is going through structural change,” he said. “We have a capex boom occurring in the resources sector, but a lot of that capital expenditure is being provided by overseas companies.

“Australian companies are missing out on a large part of that economic growth and the share market isn’t really exposed to those benefits,” Van Munster continued. “Then, on the other side, the Reserve Bank of Australian is keen to keep the rest of the economy

capped so that we don’t have an inflation problem – particularly an asset bubble such as another property boom like we’ve seen after previous resources booms.

“As a consequence, the rest of the economy is suffering, but at the end of the day, we have unusual fiscal conditions and monetary conditions in Australia, and it means that, for the time being, both the market and consumers are doing it tough,” Van Munster said.

Yet that is not to say that the Australian equities market hasn’t had its fair share of standout performers. While acknowledging the headwinds outlined

by Van Munster, Hyperion Asset Management chief investment

officer Mark Arnold said that the market’s more defensive stocks were those that had done reasonably well.

“The defensive, high-yield stocks have actually done pretty well in a general sense,” he said. “A good example of that is Telstra, which was one of the topperforming stocks last year after a decade of underperforming.

“In terms of the stocks that we have in our own portfolio, the internet stocks that we hold, the likes of the REA Group, carsales.com.au, and SEEK, those stocks have performed very well in terms of their financial metrics over the last 12 months as well,” Arnold Continued on page 28

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Dealing with global sentiment ☞ Continued from page 26 continued. “Their proper growth and sales growth has been very strong and that’s been reasonably well reflected in their share price performances.”

For Taylor, when looking for Australian stocks that had outperformed over the past 12 months and those likely to do so in 2012, the key would be discernment.

“To me, the interesting thing is that if I look across the world at valuations, everything’s trading at very similar valuation levels,” he said. “If we look at all world markets, they’re all really trading on 10x or 11x, everything’s on the same multiple.

“And if you start to delve into the Australian market, all the sectors are trading about the same multiples – even if you go into the stocks, the same pattern exists there as well,” Taylor added.

“There’s been this real compression and I think that says the markets are extremely fickle at the moment; they don’t believe anything anyone is telling them to the extent that it’s a case of ‘I’ll believe it when I see it’.”

Taylor said that whether the company was good quality, bad quality, high growth, or low growth, everything was trading on the same sort of multiples because the market was viewing those stocks with equal scepticism.

“However, I do think that 2012 is definitely going to be year of differentiation, a year of discernment and looking through the market,” he said.

“So using the resources sector as an example, it’s going to be the mining services stocks that SUPERREVIEW

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do well rather than the miners themselves.

“In a low-growth world, if you can deliver dividend yield and sustainable dividend yield, that’s going to be a sought-after asset,” Taylor continued. “And similarly, if you can deliver growth in a low-growth world, that’s also going to be bid up by the market as well.

“So that just means there’s going to be a lot more discernment. There’s going to be a lot of individual stocks that stand out, those with strong management teams who have sound strategies that can actually deliver growth and en-

Paul Taylor

sure that yields are sustainable. They’re the ones who are going to do well.”

Of course, while Taylor’s prediction of greater stock differentiation may prove accurate, the fact remains that investors have been and are likely to continue to be wary. The current trend is risk aversion and for Van Munster it is a fact that domestic equities managers need to be aware of, if not concerned by.

“Certainly, there’s a high degree of uncertainty about the structural changes occurring in

Australia and the strength of the global economy,” he said.

“So yes, in that regard investors want to remain defensive and protect their capital.

“This is reflected in the amount of funds flowing into term deposits, for example,” Van Munster added. “And globally, particularly private investors have been happy to invest their funds into relative safe havens – even if they’re not getting a return.

“It’s been more about the return of your capital rather than a return on your capital, if you like.”

Arnold said that he too had seen significant evidence of moves down the risk curve over a prolonged period.

“At the asset allocation level, there’s certainly been a move towards more defensive asset classes like cash and fixed interest and away from growth assets like equities and property,” he said. “But we see that as an opportunity for investors in that we think that moves towards more defensive asset allocations are really being driven by backwards-looking thinking and backwards-looking fears.

“We think it’s far more likely that markets will revert,” Arnold continued. “So price/earnings ratios have come down a long way over the last few years and we think there’s potential for the price/earnings ratios within the market to expand from current levels.

“And that, for us, is a definite upside.”

Like Taylor, Arnold noted that current current price/earning ratios were sitting at around 12x. However, his view was that if investors took a longer-term view and excluded the high inflation periods during the 1970s

“The key is to understand the super fund’s investment strategy and how a fund manager fits into that.”

and 1980s, the average price/earnings ratio had actually been around 13.5x to 14x on a trailing basis.

“So we think there’s upside potential in terms of the price/earnings ratio,” he said.

“Also, because there’s quite a few sectors of the economy where things are pretty tired and demand’s pretty depressed, we think there’s earnings recovery potential in a cyclical sense as well.

“And that’s particularly so if you have a situation where the Australian dollar started to drift lower,” Arnold added. “That would take a lot of pressure off some of the key sectors in the economy and lead to higher earnings for those particular sectors.”

The reality, according to Van Munster, is that risk-averse and backwards-looking attitudes cannot last forever.

“Sitting in investments that provide literally zero returns is not the best strategy,” he said.

“In Australia, we have the luxury that term deposits are offering relatively good interest rates, but that’s not going to last forever either.

“At some point, investors

need to have a diversified portfolio and they need to look at growth opportunities,” Van Munster continued. “If the world’s economic prospects improve, the risk premium that people will require to invest in more risky assets will erode and that will create the best investment opportunities for equities.

“At the moment, you could make a case quite easily that investors should be defensive, but in the long run, that’s not going to assist them for very long.”

So if investors’ current wariness is likely to be short-lived and if the opportunity in domestic equities markets is there for the taking, the question lies in where they are likely to turn.

For Australia’s super industry, the upcoming MySuper environment has created a significant focus on cost. Manager selection has become critical, but for Van Munster the key is to understand the super fund’s investment strategy and how a fund manager fits into that.

“Across a number of super funds, we’re seeing a continuation of the core/satellite approach - going passive for a core part of the portfolio and then having satellite managers who take a more risky, active, and concentrated approach,” he said. “We’re seeing more and more of that.

“But in the active management space, I think institutional investors are becoming increasingly more scientific about it,” Van Munster continued. “A number of funds have consolidated the number of fund managers they have to reduce the degree of stock duplication and improve diversification.

Continued on page 30

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30 EQUITIES

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Dealing with global sentiment ☞ Continued from page 28 “They’re looking for fund managers who complement each other.”

For Taylor, having runs on the board over a prolonged period of time was also critical.

“Over the last few years, I think a number of fund managers have really struggled in this sort of environment, really struggled to deliver solid performance,” he said. “And I guess that’s what we’ve done and super funds and investors generally have liked what they’ve seen.

“So over the last 9 years now, we’ve delivered outperformance pretty much every year, averaging about 4 per cent outperformance per year - and it obviously gets people’s attention,” Taylor continued. “They like the ability to do that up-market and down-market and the consistency of it.

“In a broader environment

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where fund managers have generally struggled to outperform, we’ve actually delivered the performance that investors have been looking for.”

Looking within the investment teams themselves, Van Munster said super funds were looking for an ‘X factor’.

“In the first instance, they want to know that the manager can not only provide the returns that they’re looking for, but have stable teams that can produce those returns and produce them on a consistent basis,” he said.

“They want to see a repeatable process that can provide returns through the cycle, and they want to know that the right incentives are in place for the investment team managing the portfolio so that there’s an alignment of interests between them and their clients.

“Most importantly, they want to know that you’re focused on delivering investment returns

rather than just purely increasing your funds under management.”

But regardless of which domestic equities fund managers end up winning the large institutional mandates, it seems all will be focused on similar goals for 2012.

For Taylor, the macro/micro theme that persists within the local market is an interesting one.

“That said, we tend not to get too caught up in the whole macro environment because that’s how you can get yourself caught out,” he said. “We try to focus on what we think we’re good at, which is picking good companies.

“For the year ahead, people are going to get excited about US growth or excited about the LTRO of Europe, and then there will also be macro fears that we will go up and down on as well,” Taylor continued. “But sometimes a lot of it can just be noise

and if you just focus on the good companies delivering good results with a strong balance sheet, they’re the ones that will go through that.

“That’s the way we generally try to look at the world.”

Alternatively, Van Munster said that while Tyndall remained an intrinsic value manager, they had also changed and adapted to what they saw as emerging market trends.

“One is trying to avoid as many value traps as we possibly can,” he said. “Now you always try and do that, but we’ve actually been more regimented about that in the last couple of years because Australia and the world is going through structural change.”

“There will be winners and losers out of that, and unfortunately, we will have industries and businesses that may not exist in five or 10 years time,” Van Munster continued. “Businesses will attempt to adapt

to those changes and while some will be successful, there will be just as many that won’t.”

The goal, according to Van Munster, has to be minimising the downside risk in a given portfolio.

“It’s actually wading through those issues rather than just purely looking at value,” he said.

“It’s realising that there are going to be potential losers out of this structural change and trying to avoid them.

“And then the other trend to be aware of and adapt to is shorter market cycles,” Van Munster added. “It’s that realisation that we can no longer look over the valley and hope that the Australian economy and local businesses are strong enough to withstand any headwinds that they have.

“We’ve got to be surer and sharper, not just in reading these trends, but more importantly, in how we deliver returns for our clients.” SR

APPOINTMENTS 31

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Events Calendar Super Review’s monthly diary of superannuation industry events around Australia and abroad.

APRIL VICTORIA 12 – ASFA Super Reforms Event Series. SuperStream: Practical guidance on the data standards framework.

Venue: Savoy 1, Grand Hyatt Melbourne. 123 Collins Street, Melbourne. Enquiries: ASFA Events Department, Ph: (02) 9264 9300 or 1800 812 798.

19 – ASFA Super Compliance Summit. Conquering compliance. Venue: Grand Hyatt Melbourne. 123 Collins Street, Melbourne. Enquiries: ASFA Events Department, Ph: (02) 9264 9300 or 1800 812 798.

19 – ASFA Luncheon. SCT Update: What funds need to know.

Speaker: Jocelyn Furlan, Chairperson, Superannuation Complaints Tribunal .Venue: Grand Hyatt Melbourne. 123 Collins Street, Melbourne. Enquiries: ASFA Events Department, Ph: (02) 9264 9300 or 1800 812 798.

NEW SOUTH WALES 18 – ASFA Super Reforms Event Series. SuperStream: Practical guidance on the data standards framework.

Venue: Melbourne and Sydney Rooms, Sofitel Sydney Wentworth. 61-101 Phillip Street, Sydney. Enquiries: ASFA Events Department, Ph: (02) 9264 9300 or 1800 812 798.

23 – ASFA Super Compliance Summit. Conquering compliance. Venue: The Westin Hotel, Ballroom, Lower Ground Floor. No. 1 Martin Place, Sydney. Enquiries: ASFA Events Department, Ph: (02) 9264 9300 or 1800 812 798.

23 – ASFA Luncheon. SCT Update: What funds need to know. Speaker: Jocelyn Furlan, Chairperson, Superannuation Complaints Tribunal .Venue: The Westin Hotel, Ballroom, Lower Ground Floor.

No. 1 Martin Place, Sydney. Enquiries: ASFA Events Department, Ph: (02) 9264 9300 or 1800 812 798.

QUEENSLAND 23 – ASFA Super Reforms Event Series. SuperStream: Practical guidance on the data standards framework.

Venue: The Grand Ballroom, Stamford Plaza Brisbane. Cnr Margaret and Edward Streets. Brisbane. Enquiries: ASFA Events Department, Ph: (02) 9264 9300 or 1800 812 798.

Fax details of conferences, seminars and courses to Super Review on (02) 9422 2822

AUI strengthens team

Australian Unity Investments (AUI) has appointed Fiona Dunn as general manager – joint ventures and institutional. eporting to AUI chief executive officer David Bryant, Dunn moves into her new role following the appointments of Stephen Alcorn as head of institutional and Kara Gilmartin as head of joint ventures. Both Alcorn and Gilmartin will now

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report to Dunn.

Dunn has more than 22 years’ experience in financial services, having held a number of senior business advisory roles. She was previously general manager of Perpetual’s wholesale business, and a division director with Macquarie Bank’s

funds management division.

Commenting on her appointment, Bryant said Dunn had a proven track record building successful businesses – predominantly within the institutional space – and an ability to create and maintain strong business relationships. SR

IN a six-month handover process, QBE Insurance Group has announced that John Neal will succeed long-serving group chief executive Frank O’Halloran from 17 August 2012.

As the former chief executive officer (CEO) of specialist commercial motor insurer Ensign, Neal has considerable underwriting skills.

For eight years he served as chief underwriting officer and chief operating officer in QBE’s European operations before heading to Sydney in 2011 to manage the company’s global underwriting operations.

As QBE’s current CEO of global underwriting operations, Neal facilitated global forums to drive both strong underwriting discipline as well as operational and cost efficiencies.

principal to head its superannuation consulting practice.

Blair will be responsible for advising clients and growing the practice.

With more than 20 years’ financial services experience, he has worked Pillar, Russell and Towers Watson in roles including client consulting, account management, product management and institutional sales and strategy.

The company stated that Blair’s appointment is part of an overall strategy to expand its consulting services within the financial services space, following the appointment of deputy chief executive Melissa Fuller.

She is now responsible for strategy, marketing, and operations at Rice Warner, allowing chief executive Michael Rice to focus on expanding the business and public policy.

Furthermore, Rice Warner director Richard Weatherhead has taken on the additional role of building the company’s investment consulting practice.

a senior research analyst with Morningstar, where he provided analysis and investment advice to large financial services institutions, investment committees, dealer groups, and advisers on asset allocation, portfolio construction, investment manager selection and approved product list management.

Prior to this, he worked in a range of investment analyst roles which included stints at Skandia, Close Wealth Management, and Goldman Sachs.

Dorrian said Valtwies’ skill and expertise will build on Pimco’s position in the Australian adviser market, including through dealer groups and wrap platforms.

Following a company rebranding, Antares – formerly Aviva Investor Australia – has announced the appointment of MLC Investment Management general manager, product Sam Hallinan as Antares managing director.

Hallinan will report to MLC chief investment officer Nicky Richards, who is now responsible for leading all of MLC’s inhouse asset management teams.

Along with Hallinan’s additional duties, Antares has also appointed Nick Pashias to the role of head of equities.

Hallinan said the investment philosophy and process for the team will remain unchanged under the rebrand.

Rice Warner Actuaries has appointed Mark Blair as a

Global bond manager Pimco has announced the appointment of John Valtwies as a portfolio specialist within the global wealth management group.

Working alongside fellow portfolio specialist Michael Dale and Pimco head of global wealth management Peter Dorrian, Valtwies will communicate the elements of Pimco’s fixed income investment strategies to its adviser market clients, including private banks, financial planners and dealer groups, the group stated.

Valtwies was most recently

nabInvest has confirmed the appointment of Rob Sullivan as global head of institutional distribution.

Reporting to nabInvest executive director investment solutions Stewart Hancock, Sullivan will work with the nabInvest and asset management leadership group to develop solutions in relation to the distribution of investment strategies to institutional clients globally.

Before joining the company, Sullivan headed global distribution at Treasury Group and has managed the distribution operations for their boutique partners since 2006.

Prior to that, he held senior product development and institutional distribution roles at Credit Suisse Asset Management and portfolio manager responsibilities at ESSSuper. SR APRIL 2012 * SUPERREVIEW

ROLLOVER

THE OTHER SIDE OF SUPERANNUATION

Phantom of the soap opera

No pollies – what a cracker!

GIVEN what transpired just a few days after the Super Review Charity Golf Day (see below), Rollover imagines quite a few delegates to the Conference of Major Superannuation Funds (CMSF) in Brisbane were pleased to leave the Queensland capital ahead of the State election result.

CMSF wrapped up on Wednesday 21 March, and the Australian Labor Party

found itself reduced to just a handful of seats on Saturday 24 March – ending nearly a decade and half in power.

But it did not matter to members of the Gillard Government because not a single minister or parliamentarian fronted CMSF 2012.

Perhaps the guys at the Australian Institute of Superannuation Trustees

(AIST) knew something when they decided to make CMSF a politician-free zone, but Rollover also wonders whether the pollies had been monitoring the polls and decided to make themselves scarce.

Whatever the case may have been, it is worth noting that AIST is not letting the electoral ebb and flow impact its selection of venues, with CMSF returning to BrisVegas in 2013. SR

Mine’s a legal eagle, says first Noël ROLLOVER wishes to thank all those who participated in the annual Super Review Charity Golf Day competing for the coveted plastic and wooden trophy.

As reported elsewhere in this edition, the winners for 2012 were the Pillar team, ably led by Chris Woodward – but Rollover notes that they were carried across the line by the singular golfing effort of

well-known barrister and man about town Noel Davis.

As someone who sits on the Superannuation Complaints Tribunal and writes sundry worthy articles for Super Review, Rollover is all admiration for Davis, but notes the great man’s explanation of how he managed this year’s win.

“I filled in the score card,” Davis said. SR

Well done, Fiona SUPERREVIEW

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APRIL 2012

WHEN Rollover suggests that CMSF was a politicianfree zone this year, that should not be taken as suggesting the event was entirely without a Prime Ministerial presence.

The entertainment at the gala dinner involved a comedy parody of Phantom of the Opera, with the central characters being the Prime Minister, Julia Gillard and her predecessor, Kevin Rudd.

Rollover is not entirely sure what Andrew Lloyd-Webber would have made of the Phantom parody at CMSF, but if audience reaction was taken as a gauge, the performance was well-received by most.

The difference between political life and comedy art was that in the parody version, Julia made sure the Phantom Kevin never returned to haunt her. SR

Got a funny story?

ROLLOVER wishes to congratulate Australian Institute of Superannuation Trustees chief executive Fiona Reynolds for the manner in which she carried out her duties at this year’s Conference of Major Superannuation Funds.

While not wishing to go into the details, Rollover knows that Reynolds was keeping up with a very busy schedule at CMSF at the same time as dealing with a number of sad family events.

Well done, Fiona, and the team supporting her. SR

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Email editor@superreview.com.au or send a fax to (02) 9422 2822.