In today's AFR it is alleged that super fund managers have taken advantage of their clients' funds. There is a credit card expenses scandal at a $700 million industry superannuation fund, Health Industry Plan, which has triggered an investigation by the Australian Prudential Regulation Authority and wholesale changes to the fund’s trustees.
It is another instance of what many DIY super investors suspect. That the people charged with looking after their money cannot resist giving themselves a healthy slice of it as well. It is one reason why DIY super has surged so strongly since the Global Financial Crisis. If ever there was a vote of suspicion, it is that.
The Health Industry Plan, which has 24,000 members, is in the last stages of a merger with the $2.3 billion Prime Super, which has 150,000 members and is the default super fund for 33,000 employers in the rural sector.
The AFR draws a few lessons, which are a useful guide for DIY super investors:
"First, problems of corporate governance in industry super funds cannot be exclusively sheeted home to the involvement of unions.
In this case the chairman and CEO were employer representatives who were able to approve each other’s expense accounts.
The fact that APRA asked the remaining directors of the fund to examine accounts going back over five years suggests the power of the two men was well entrenched.
Their power was only broken down by the actions of a brave whistleblower.
The second lesson is that directors need to be turned over regularly to ensure fresh blood and that sunlight is brought into dark places.
Long-serving trustee directors are a prominent feature of industry super funds.
Mr Wallace was a director of Health Industry Plan for 20 years and Mr Bernays was chief executive for 14 years.
The equal representation of union and employer representatives made it impossible for difficult issues in relation to the fund’s expenses to be dealt with at board level.
The federal government has proposed a corporate governance reform package which would involve at least three independent directors being appointed to each industry fund board of trustees."
The somewhat discredited Liberal Party minister (suspended) Arthur Sinodinos released a discussion paper Better regulation and governance, enhanced transparency and improved competition in superannuation.
Good governance is essential in super, and that applies to self managed super as well. The AFR notes that a chairman and CEO should not be able to approve the reimbursement of each other’s expenses. That kind of conflict is inevitable in a DIY fund. Trustees should be aware of that.
But the main lesson from this scandal is that just because a fund is big does not mean it is acting in your interests:
"The latest figures on fund expenses published by the Association of Superannuation Funds shows that in many cases bigger funds do not have lower administration expenses than smaller funds."