By calling out the industry’s placing of self-interest over consumers’ best interests, the Hayne royal commission has already begun to reshape the battle lines that exist between industry funds and for-profit advisers, experts have observed.

Industry funds have begun to open up to traditional retail research houses to provide a clearer comparison between their own and for-profit investment options, experts in both the industry fund and for-profit camps say.

Similarly, advisers are increasingly eager to tap into new information that can help them understand the asset allocation and investment decisions of industry funds better, these experts say.

“I think the days…where funds go out of their way to give terrible service [to those advisers working with industry-fund clients] are limited…Funds actively working with advisers are getting a much better outcome,” Sunsuper head of advice and retirement, Anne Fuchs, says.

Sunsuper dismantled its employed adviser distribution channel three years ago to implement a registered adviser model, although it still employs 16 “intrafund” advisers who provide simple advice. The fund has 1.4 million members and works with about 40 advisers, to which it refers members, Fuchs says.

Granular data at the portfolio level is often missing from industry funds’ disclosures but fund researchers are increasingly looking to step up to provide it for advisers, so they can make “like for like” comparisons with funds in the for-profit segment, Lonsec chief executive Charlie Haynes says.

Lonsec is approaching between 60 and 70 industry funds about plugging themselves into the firm’s iRate research platform, which will apply the same methodology to super funds as it does to retail unit trusts. So far, eight industry funds have agreed to be rated in this way, a number Haynes expects to increase.

“I think there’s a trust building,” Haynes tells Professional Planner. “Advisers want to see they get transparency and access to info they need and the funds want to observe the retention and that when they go through the process there’s a good outcome for the client.”

The willingness of industry funds to open up to the retail advice industry still varies markedly depending on the philosophy of the individual fund, Haynes adds.

“It all depends on where they are in the spectrum of engagement with advisers,” he explains. “Some funds think advisers are the enemy and will never deal with them, others know that in order to survive, they need to provide advice to their members and they need to be part of that process.”

As regulators and policymakers investigate vertical integration and the possibility looms that commissioner Kenneth Hayne’s final recommendations could force a separation of product and advice, industry funds are probably looking closely at their advice models.

“The royal commission [recommendations] could have a profound impact on industry funds because every superannuation fund really has a vertical integration challenge,” Sunsuper’s Fuchs points out.

For now, though, demand for greater transparency from industry funds on their portfolio holdings is being driven mostly by advisers, Lonsec’s Haynes says.

When Lonsec added superannuation research to its iRate platform, almost 400 advisers signed up for a trial within the first two weeks, Haynes notes.

“Many of the funds we talk to seem to get it but others remain sceptical [about opening up to retail advisers] and might be waiting for the royal commission to release its final report…The advisers we speak to are saying they can’t satisfy best-interests duty properly for many of their clients without this info,” Haynes says.

Smith is head of content and managing editor of Professional Planner and Investment Magazine.
Leave a comment