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Ever wondered why your super fund is set up like it is? Or who all those companies are that are listed in the back of your annual report?
Even if you have a basic understanding of how the super system works, for most Aussies, the details around how their super fund is structured and who’s who in the fund are a bit of a mystery.
But it’s worth learning a little bit about it, as it explains a lot about who is looking after your retirement savings and who’s responsible for ensuring your money is there for you when you finally get to put your feet up.
What is a super fund?
This sounds like a silly question but, in fact, it’s one most people never ask.
At its heart, a super fund is a trust. A trust is a legal relationship where a person (or board of trustees in the case of a super fund) holds assets, property or rights on behalf of and for the benefit of another person.
The person or entity holding legal title to the assets is called a trustee, while beneficiaries are the people receiving the benefits flowing from the assets or property.
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In a super fund, the board of trustees (or directors) is the trustee of the trust and holds legal title and ownership of the fund’s assets on behalf of the members. At all times, however, the beneficial interests of the fund’s assets – including the income and capital – belong to the fund’s members.
The rules for trustees
A super fund is simply a form of trust designed to provide retirement or death benefits to the fund’s members, who are the beneficiaries of the trust. All the super funds in Australia operate as trusts and are required to have a trust deed.
One of the key rules around trusts is that the trustee must follow a set of conduct rules known as fiduciary obligations. These obligations mean a trustee must always ensure they act in an honest and reasonable way and not use their position as a trustee to benefit themselves. For example, the trustee of a super fund must only buy and sell assets that are of benefit to the fund and its beneficiaries, not the trustee’s financial or personal benefit.
Trustees must not enter into transactions that give rise to a conflict of interest between the trustee’s personal interests and the duties they owe to the beneficiary of the trust.
How does your fund trustee operate?
In addition to the trust deed (or governing rules), there are strict rules and legislation governing how the trustee must manage the fund on behalf of its members. These require the trustee to hold:
- Registrable Superannuation Entity (RSE) licence from APRA
- Australian Financial Services Licence (AFSL) issued by ASIC
- Indemnity insurance to protect the trustee from legal action.
Your super fund must also have a fund governance framework outlining its key policies and procedures, how the trustee will make its decisions and the structures it will use (such as board committees).
Trustee boards use these specialist committees (such as audit and risk or member services) to take responsibility for particular tasks and to ensure the fund meets all its legal and regulatory obligations.
Who’s who in your super fund: 7 key experts you need to know
These days, most working Aussies are members of huge super funds that take a range of people to run them efficiently.
Although the fund’s trustee has the legal authority – and responsibility – to appropriately administer and manage your fund, in practice it usually delegates most of the complex tasks to professionals specialising in a particular area.
So to really understand your super fund, you need to learn a little about the service providers working on your behalf to create solid investment returns and to provide you with efficient member services. Some of the key people in your super fund are:
1. Trustee or trustee director
The trustees of a super fund are the key people in the fund and must act in the best interests of the fund’s beneficiaries – members like you. Most large funds have a trustee board of between four and 16 trustees.
Traditionally, big super funds operated with an equal representation trustee board, with half of the trustees appointed by employers or the fund sponsor and half appointed by fund members. Increasingly, funds are appointing independent trustees who are often experienced directors from company boards. In retail super funds, the trustee is often an approved trustee company registered with APRA.
Trustees are not required to be experts in every aspect of running a super fund, but they have final responsibilty for its performance and the actions of any professional experts they hire.
2. Investment manager (or fund manager)
Investment managers are specialist investment professionals appointed by the trustee board to invest the fund’s assets.
An investment manager’s entire focus is on what’s happening in investment markets and their role is to decide the specific assets to buy and sell to make the best investment returns.
Investment management firms usually concentrate in a particular market such as Australian shares, international property, unlisted assets or US bonds. They are paid for their specialist knowledge about these markets and the trustee measures their results against clear investment benchmarks or indexes to ensure they are performing.
A large super fund will select a range of investment managers, with some using up to 40 or 50 managers focussing on different markets.
Specialist fund administration companies help the trustee board administer your super fund and often have responsibility for its call centre and member contact services. Administrators also help ensure your fund continues to comply with the ever-changing legislation and regulations governing super funds in Australia.
An administrator is responsible for receiving and recording employer and member contributions into the super fund, issuing annual reports and compiling member statements. The administrator usually answers most of the queries and emails received from fund members.
4. Asset consultant (or investment consultant)
There are thousands of investment managers around the world and asset consultants are experts in understanding the differences between them. Their job is to help the trustee select the right one for a particular task as part of achieving the goals set for the fund’s investments.
As investment specialists, asset consultants also provide sophisticated advice to the trustee and assist with the design and implementation of the fund’s asset allocation strategy.
The insurance cover you receive through your super fund is not administered and provided by your fund, but by the specialist life insurance company selected by the trustee.
Life insurers specialise in death, total and permanent disability (TPD) and income protection insurance. They assess any claims you make against your insurance cover (if you hold it through your fund) and decide whether or not you are eligible to be paid. This decision is not made by the trustee.
A custodian is an independent organisation appointed by your super fund to hold, keep track of and safeguard the fund’s assets on behalf of members.
Custodians help protect the fund from fraud and questionable investment transactions. If an investment fraud occurs, the custodian is held responsible, as avoiding this is one of its key tasks.
A custody firm also performs specific administrative, unit pricing and accounting functions to help the trustee set the fund’s daily unit prices and calculate its investment performance at financial year-end.
Like any large financial institution, the financial records of big super funds are regularly audited by one of the large accounting firms that specialise in auditing companies.
The auditors key task is to review and verify the accuracy of the fund’s financial records and to ensure it has complied with tax and super law. They also check for potential frauds and point out any discrepancies between the the fund’s accounts and established Australian accounting standards.