Industry super fund ads are deceitful

You have probably noticed the advertising campaign being waged on the  nation's TV screens in favour of industry superannuation. This campaign is at best deceitful and at worst deliberately misleading.

Let's look at some of the claims. They say, for example, that they have eliminated ingoing commissions and forced private super funds to eliminate theirs. It's a fact of life that private sector funds have to pay their agents somewhere along the way, otherwise they may as well go and volunteer to serve those suffering  in Darkest Africa. We all have to make a living. Anyone who believes differently is living in La La Land. The reason the industry funds can get away with paying no commissions is called default super. Fair Work Australia (FWA) is its so called 'modern' super nominates a default fund or funds. That is, all employees who do not nominate a super fund  are channeled into the default fund. Between those who take the default option and those who join the union fund (often encouraged by their employer), it is common for 70 percent of employees covered by that award to join the default fund. Nice work if you can get it for the industry super board members.

 Note, I did not say 'union members'.  Australia's 'modern awards' are modern in the sense that the horse carts that carry tourists around some cities are 'modern'. In our lunatic, archaic industrial relations system, just about all workers are covered by an award that determines their wages and conditions.  But only 13 percent of workers in the private sector are\unionists. Thus, default super covers all workers regardless of whether they are union members or not -- and they are usually not. It's a new riff on the old closed shop. The industry funds don't need to recruit members or pay commissions -- FWA does it for them.      

The second item I wish to examine is the oft repeated claim that  industry funds outperform  private funds. Vanguard in the US have a well-known slogan 'In Passive We're Massive'. In other words, match the market. It's a proven fact that most active fund managers won't even match the market. In the Australian context, the bulk of most portfolios have been no brainers  -- Rio, BHP and the four major banks make up about 70 percent of the market. If you had invested in them long term, you would have done enough to keep your members happy. But  any financial product offered to retail investors must have  a disclaimer (legally  required by the Australian Securities and Investments Commission)-- 'past performance is an unreliable guide to performance in the medium or long term'. Now, unless you're investing with Warren Buffett, the Sage of Omaha, this is very good advice. Portfolio management is far beyond my abilities as an amateur stock picker, but in essence active portfolio management can be boiled down to 'what goes up must come down.'

Referring to the the direction of stocks listed on the ASX, the AFR's Chanticleer column (14 July 2012) comments  'The majority of Australians in default superannuation funds will have a high exposure to resources and will be vulnerable to a China slowdown. In fact, those with the typical default fund\ should brace themselves for negative super returns for he year to June 2012 of between 5 and 7 per cent simply because of their exposure to companies such as BHP Billiton and Rio Tinto. ' It's worth bearing in mind the old market saying 'anyone can be a genius in a bull market.'

Thus, the implication that industry super funds they will continue to outperform private funds in the medium to long run is at best deceitful and at worst verges on being unlawful.