Money managers face trust deficit

The performance of pension savings is a highly charged subject at the best of times, but a recent Productivity Commission report, combined with the Financial Services Royal Commission, has made it even more emotive.

I have always tried to stay neutral on the subject of industry funds versus retail funds when it comes to superannuation.

While there are many arguments around the cost of retail funds there are, equally, concerns about the political nature of many industry funds, especially those closely aligned to unions and employer bodies.

Most of us would have seen the huge advertising campaign by industry funds to argue that their returns are better in the longer term.

I’ve always been cautious about that claim, having examined various industry funds that were locked into long-term assets such as CBD buildings and coal-fired power stations, where performance was questionable.

Many industry funds have also had a big leg up from default superannuation status, under industry awards that have provided for an even greater automated flow of funds than might have existed in a more competitive environment.

This mandated growth has always had the potential to make them lazy.

Then again, the retail funds, once huge self-promoters in their own right, have gone AWOL in the debate about what value they offer.

That suggests to me that they struggle to successfully prosecute an argument against the performance claims of industry funds.

The shocking revelations about AMP and its fall from being a historic pinnacle of responsible practice underscore how far the major retail brands need to go to claw back respectability in the eyes of consumers.

In my mind, AMP was the major representative brand of retail super.

Of course retail super also has the difficult backdrop of bank ownership across sectors.

Over the past 20 years, banks have spread into the wealth sector, acquiring fund managers and financial advisory groups as a form of vertical integration, which allowed them to participate in much more of their customers’ financial decisions.

That experiment is coming to haunt them in the royal commission where, I suspect, they are being harmed way more than any industry funds will be when their turn comes.

Most of the major banks have signalled their exit from this business as a result.

I was interested to note the renaming of listed retail fund manager BT Investment Management this month, to Pendal, a contrived name that desperately draws on its roots as an asset manager for the Dalgety Pension fund.

BT started as a joint venture in Australia by Bankers Trust, a once enormous name in asset management.

I am unclear as to why the BT acronym has been discarded.

I doubt the cynical public recalls that BT equates to the increasingly oxymoronic origins of its name. 

Perhaps the moniker shift is to distance itself from Westpac, which once owned BT in Australia and was its biggest shareholder until 2017.

Whatever the case, this repositioning does appear to be part of a broader trend that is occuring across the sector as banks jettison their financial advice businesses and get back to their knitting – lending money to businesses and consumers in order to make the world go around.

Industry funds ought to be watching this space closely.

It is clear that the value of brands in financial services can be destroyed by bad managers distracted by anything other than getting the best returns and service for their consumers.

The sector, as I have stated, has long positioned itself as the best of the bunch in this respect.

The danger will be whether this collective approach has a future if top performers find themselves tarnished by the acts of less-able peers.

It will be interesting to see if the royal commission has any impact in this respect. As I said above, I don’t expect it to be as damaging as what has happened to the banks.

Then again, I don’t think many of us thought this inquiry would smash the banks as much as it has.

I am also watching to see if independent wealth managers and financial advisers, both the long-term players and those freed by the banks, will now return to promoting their value to the public.

Pendal sent this clarification regarding details in the article above:

• The BT brand is owned by Westpac and was licensed to BT Investment Management (BTIM) under a five year agreement.
• With Westpac gradually selling down its majority shareholding over recent years, and the licence agreement due for renewal in September this year, the company felt that the time was right to invest in a brand identity it owns.
• Pendal Group, under its former name of BTIM, has achieved standalone success and carved out an independent reputation since being floated out of Westpac in 2007.
• The Pendal name and its link to BT’s heritage has recognition with clients and other industry participants, from the time when it was used as our nominee company.