We are not in competition with industry funds

The angst against industry funds is their marketing tactics to entice clients to join them on the argument they are better performing. They are comparing their own balanced funds with up to 90% growth assets with traditional balanced funds with up to 70% growth assets. This is not an argument that unlisted infrastructure and property should not be included in a portfolio. It is the argument that a fund with 90% exposure to growth assets is not balanced. Peter Costello recently commented that it is a nonsense to compare returns without taking into account the risk taken. Risk adjusted returns should be used to evaluate performance. Also given the absence of ongoing adviser input for the average industry fund member and the resultant panic transfers to cash we have witnessed, it is incumbent on industry funds to have sufficient liquidity in their balanced funds to facilitate these redemptions.

That's all well and good if the Industry Funds would all allow any Licenced Adviser to recommend and be paid via the super fund for advice about that asset. They advertise about how much better off people are for years with some interesting marketing at best. They even fronted the senate about how good they were only late in 2019 then they start crying poor because they have too much unlisted assets. If it was a true, fair playing field they would also have to independently value these assets multiple times a year as well. I recommend industry funds where appropriate but I know the clients get annoyed paying out of pocket compared to going to one of the funds advisers who can charge the fund direct.

Josh - I 100% disagree. Your mandate as an adviser is to act in best interests of your client. Part of this approach is to research and recommend strategies & investments that fit into your clients risk profile. One of these issues and it is a primary issue for me is liquidity - is there a back door to a strategy, a way to exit an investment, etc. Liquidity raises it's head every time there is a crisis. Go back to GFC when mortgage trusts, property funds, hedge funds, private equity funds, high yield funds all became locked up and either suspended or "drip fed" redemptions back to investors over a number of years

Industry funds have grown due a legislated inflow of contributions that provides significant $ that has provided easy $ to them. They have marketed their funds on providing superior returns to investors. Some of them run opaque structures and unlisted or illiquid assets are valued from time to time. These assets do not smooth out returns at all - in "good" times they appear to provide superior performance and now in a period of crisis the values will go down. Without sufficient research, nobody knows what stress the underlying assets are under, whether a PE Fund will lock up, etc. Unlisted assets need to be valued at realistic prices and in current market this means marked down otherwise unit prices of the funds will be artificially high.

Many Australians would have no idea what assets their default super funds own, nor the risks involved of such investments. This is not a "gotcha" call at all but a wake up call to all those who act as Custodians of their clients or members monies

Hi Josh, the criticism is not about the exposure to unlisted which I agree can be suitable. It is about the way in which these funds have chosen to categorise them as defensive, which is seen as being less than honest. And, if recent devaluations are a case in point, then they are certainly not defensive, and that's before perhaps they really start devaluing them.

Josh, You are correct we are not in competition with Industry Funds. They are selling a product. We are providing advice.

In this discussion the Industry fund is paid by AUM. A lot of the advisers are not.

The liquidity issue you are raising here is portfolio failure. Nothing else. They have a product that allows people liquidity in 5-7 days and they apparently don't have a portfolio to match. That is portfolio management 101 and a clear fail if they need the RBA to provide liquidity.

I tell my clients that share market falls of 20-30% happen all the time. You don't know when or why, the only thing that matters is what happens to your portfolio? If you don't like the answer to that question then do something about it now. The Industry funds obviously do not ask these questions in their portfolio meetings.

Why don't they use equities and cash/fixed interest to meet redemptions ? If they have 30% illiquid assets then they must have 70% liquid assets.

Why don't they borrow money to meet the redemptions from a normal bank ? That is acceptable for all superannuation funds so why not for the Industry funds? Why do they need a bank of last resort ?

Industry fund diversified portfolios all have an interest payment fee so what is the overall debt level in industry funds? Is that why they need the RBA to provide liquidity as they are already at their lending limits from the banks ?

These are all questions an adviser recommending Industry Funds needs to know the answers to before recommending them.

Josh, have you considered that some of the industry fund members may actually be in tune to the fact that they have unlisted assets valued at "smoothed" prices and took the "rational" action to switch to cash early in the down cycle whilst 30% of the portfolio is at inflated prices. Perhaps some of the investors are smarter than you are giving them credit for.

Advisers in my network only see ISFs as competition to the extent that they -

a) constantly harp on about low (though not fully transparent) costs; and

b) fail to facilitate comprehensive advice from member-appointed financial advisers by making it administratively difficult to obtain relevant member account information (especially in the area of insurance).

There are some sound comments above regarding the liquidity issues associated with unlisted assets, and so I don't propose to add to them.

The comments I have read are spot on.

The industry funds belligerence against advisers has been vitriolic and pompous for too long.

They have been riding along on the sweetheart deal of legislated contributions from a bunch of members who are years away from retirement .... their approach to advisers and other funds over the many years has been sickening ... a real them versus us mentality ... let them rot.

They were set up in the early '80s to stick it up the " big end of town" and that they have...was it kelts and crean and ...

To put Industry Funds in perspective, they were from their inceptions via Award Super, as it was termed in 1988, a creation of the then Labour government that deliberately chose to bypass distribution via existing financial advisers. As a result of its having no distribution machinery, and by virtue of each Industrial Award's requiring cumbersome determination via the Arbitration System, the implementation of Award Super was a painfully slow, and arguably unsuccessful, process. To speed up the introduction to all workers, Super Guarantee was legislated five years later retrospective to July 1992. This, plausible though it was, was again a deliberate strategy to avoid the use of the army of available financial advisers who could have done the job at least as, if not more, effectively.

What is more, if financial advisers had been included in the distribution process, not only would the process have worked, but there would not have been the marked political and cultural divide that persists today.

And furthermore, some hundreds of thousands of fund members would not today be deprived of good financial advice and guidance.

Time for a rethink? A truce? A working together in harmony for the benefit of members, advisers and society? What a Win Win Win opportunity!