Super funds are failing in their fiduciary duty to maximise members' after-tax returns, according to a panel of experts speaking at this year's Association of Superannuation Funds of Australia (ASFA) conference.
ASIC's deputy chair Jeremy Cooper said he was alarmed that fund mangers and trustees often found it "too hard" to focus on the tax implications of their investments. He said there was an inherent conflict of interest in only reporting after tax returns.
"Trustees are encouraging and paying fund managers to produce pre-tax returns, when this is not necessarily in the interests of members," he said
Cooper was responding to comments made by Warakirri Asset Management's head of portfolio management Richard Friend, and Vanguard Investment's head of retail Robin Bowerman.
Bowerman called on trustees to appoint managers that were aware of the tax implications of their investments.
"Tax is typically one of the largest costs a super fund has to pay yet the tax efficiency of a fund manager is often ignored or at best is a second concern," he said. "For a super fund with $4 billion in assets the reward for appropriate tax management could be in the order of $18 to $30 million a year."
Friend agreed and said that trustees needed to encourage their managers to adopt lower turnover strategies, to use higher franking credits and to increase their buyback participation.
"Tax aware mandates are the future of Australian equities management."
He added that the industry needed to establish an effective benchmark of after tax results by which managers could make meaningful and competitive comparisons.
"The super industry has a fiduciary duty to facilitate this change and I believe it is an achievable goal. The opportunity is there. We have to take it and we have to take it now."
