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New name, new game for Industry Super
The Industry Super Network has rebranded itself Industry Super Australia, and although the new name does not in itself signify much change in its role, the new status the ISA has adopted does.
In late May last year, the Industry Super Network (ISN) made the first of what proved to be a series of changes which led to it last month rebranding itself as Industry Super Australia (ISA).
The registers of the Australian Securities and Investments Commission (ASIC) show that the ISN, always an offshoot of Industry Fund Services (IFS), on 25 May, 2012, became its own registered Pty Ltd company – thereby changing its underlying status for corporate and regulatory purposes.
Less than a month before the 7 September Federal Election the ISN registered another document with ASIC – an application reserving a new name. On 9 September, two days after the Abbott Coalition Government convincingly won the Federal Election, the ISN formally became Industry Super Australia.
So what is the significance of a name change? Not a great deal. What is the significance of a corporate structure independent of Industry Fund Services? Quite a lot.
The bottom line is that just like the ISN/ISA, Industry Fund Services has undertaken its own metamorphosis and now presents as a financial product and advice provider and now lists itself as being a wholly-owned subsidiary of Industry Super Holdings which, in turn, is owned by 30 industry superannuation funds.
Industry Super Holdings is also the umbrella company which covers ME Bank – and it is worth noting that the offshore view of the company as portrayed by Bloomberg/Businessweek is as follows:
“Industry Super Holdings Pty Limited, through its subsidiaries, operates in the financial sector in Australia. It provides retail banking and business banking services, including home loans, savings products, personal loans, business loans and asset finance, and credit cards. The company also offers funds management, financial planning, credit control, investment, advice, pension, retirement savings, and insurance broking services. The company is based in Melbourne, Australia.”
It is also worth noting that the Bloomberg/Businessweek analysis lists Industry Super Holdings as being similar in nature to Rabobank and Bank of Scotland (Australia) Limited.
In other words, as has been written in Super Review before, if you track the linkages it becomes easy to believe that the industry super funds have spawned their own version of a vertically-integrated financial services institution covering funds management, banking, financial planning and lobbying.
The problem, of course, is that the creation of this structure has, arguably, effectively brought into question the effectiveness and relevance of the sole purpose test contained in the Superannuation Industry Supervision (SIS) Act, which requires that fund trustees must ensure a fund is maintained solely for the benefit of members.
Each of the 30 funds which are shareholders in Industry Super Holdings contributes towards the running of that company the directors of which, in turn, apportion funding towards its various offshoots.
Some of those offshoots, such as Industry Funds Management (IFM) and ME Bank, undoubtedly then generate a return on that investment which can be seen to benefit the members of the shareholder funds.
The question in the mind of the Treasurer, Joe Hockey and the newly-appointed Assistant Treasurer, Senator Arthur Sinodinos, must therefore be how to address concerns about superannuation fund governance and transparency in the context of the structure which has been built by the industry super funds.
What is clear, however, is that the primary regulator for superannuation funds, the Australian Prudential Regulation Authority (APRA) has little capacity to deal with the activities of the ISA, IFS or IFM in circumstances where the use of members’ funds is significantly remote from the members themselves.
It is arguably the case that structures such as those built by the industry funds have moved well beyond the original intent of the legislation and, at the very least, should be the subject of scrutiny via the Government’s promised financial systems review (son of Wallis).
While the sole purpose test may have been made ineffective by the development of structures within the industry, that should not prevent a review of the effectiveness of the legislative and regulatory framework such that any loopholes are closed off.
If, as a result of being formed into a Pty Ltd company, IFA has become an industry group in similar fashion to the Financial Services Council or the Financial Planning Association, then it should be obliged to operate under the same rules.
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