Trusts require careful thought

MASTER trusts have been one of the fastest growing segments of the funds management industry over the past decade.

For many employers they provide an easy and effective solution to all of their superannuation needs.

Master trusts also have their shortcomings and independent advisers caution that many employers do not appreciate all of the risks involved.

For employers wanting to choose a master trust, there is an abundance of choice.

There are about 60 wholesale corporate master trust providers in Australia, according to research group Rainmaker Information.

All of the major banking and funds management groups, such as AMP, AXA, Colonial First State, ING and Westpac offer master trusts.

There is a handful of specialist providers, such as Asgard and Connelly Temple.

Some providers specifically target the corporate superannuation market.

These include Plum Financial Services, owned by National Australia Bank’s funds management arm MLC, and superannuation administration companies such as Mercer and NSP Buck.

The Mercer Super Trust had a big win last year, when the Coles Myer staff super fund, with 14,000 members and $850 million of assets, chose to outsource.

The key attraction for many employers is that master trusts take away the time consuming, increasingly complex and legally risky task of running an in-house super fund.

Master trusts also offer a wide range of features, including extensive investment options and online account access.

PricewaterhouseCoopers investment and superannuation consulting director Catherine Nance said master trusts were a good option for many companies.

However, she said employers needed to recognise the disadvantages, as well as the pluses, of outsourcing super to a master trust.

“Employers retain responsibility for superannuation but they have lost control of the product,” Ms Nance said.

While employers have bargaining power when they are choosing to go into a master trust, they lose that influence once they are in.

“Master trusts are bundled products and there is limited flexibility in terms of tailoring the service,” she said.

“Once your people are in, there is no easy exit if something goes wrong.”

The consent of the master trust provider would be required if an employer wanted to shift all of their staff to another superannuation provider, and in practice this was rarely forthcoming.

Another issue that is often raised is the high cost of master trusts, and the complexity of their fee structures.

West Coast Group corporate superannuation manager Allan Rickerby said many employers were simply unaware of the fees levied by their master trust provider.

This can include contribution fees of up to 5 per cent and in some cases exit fees.

Mr Rickerby said many companies also failed to have ‘policy committee’ meetings.

Employers with 50 or more staff are required by law to operate a ‘policy committee’, with equal staff and employer representatives, to oversee the master trust.

Financial Solutions managing director Sarah Baldwin said the points of distinction between master trusts were becoming less and less.

She attributed this to a combination of market pressure and regulatory pressure that has driven master trusts managers to enhance their services.

Ms Baldwin recommended that employers assess their specific needs before trying to select a master trust.

For instance, insurance is a high priority for many employers.

With the insurance market being highly volatile, Ms Baldwin said it might be advantageous to select a master trust that allowed employers to choose their own insurer.

She said service quality and member communication were other areas that differentiated master trust providers.

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