Why you might not be better off if your super fund merges

There is a misunderstanding that superannuation fund mergers will automatically lead to scale benefits for members, according to Spirit Super's chief investment officer.

Speaking at the Australian Institute of Superannuation Trustees (AIST) ASI 2021 conference Ross Barry cautioned that scale benefits do not deliver themselves.

"The danger is that you go into a merger and sit back and think that all of a sudden scale benefits are going to full out of the sky and you're going to operate at a lower cost base. That doesn't happen unless you make it happen," Barry says.

"It involves some very hard negotiations and tough conversations with fund managers and asset managers."

Barry notes that these negotiations have to happen in good faith as a super fund may approach a fund manager that has created value for members over a long time.

"You are going to ask them for some kind of fee discount or scale benefit, and I think that requires a bit of commitment. The danger in this is if you find yourself back in that room two years later asking for the same thing again," he says.

"One observation I've made is that some managers are pushing back now. Some managers are actually sacking their super funds as clients as they can get a better margin elsewhere."

Instead, Barry says if a fund is going to deliver scale benefits there has to be some rationalisation that can be of internal resources or of manager line-up.

"Those conversations are always really difficult and personally taxing. Those conversations need to be had with eyes wide open on that," Barry says.

Elsewhere, LGIAsuper chief executive Kate Farrar says Your Future, Your Super (YFYS) can be a tool for super funds to use to select potential merger partners.

"I do think that YFYS and the business criticality of the long-term relative performance history, which is not necessarily correlated with either outright return or volatility, does mean that performance relative to YFYS is likely to be a driver of merger partner selection going forwards," she says.

"In this sense, the policy will no doubt be achieving part of its policy intention and there is an important area of crossover and nexus between mergers and investments."

This article first appeared on Financial Standard

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