The Cooper review and the introduction of MySuper could have been avoided if superannuation funds had an eye for member outcomes.
But many super funds were too caught up in peer comparison and business risk to deliver the best outcomes for their members, according to industry veteran and Future Plus investments general manager Michael Block.
"I wonder how much impetus there would have been for the Cooper review if Australian super funds were better; if they were so outstanding that a low-cost, very passive, very simple super fund was not a reasonable alternative. In other words, that super funds would be so good that Cooper's MySuper option didn't stack up," Block told an Investment Management Consultants Association seminar in Sydney last week.
"Why have super fund members, especially high net worths, lost faith in super and turned to alternative providers, particularly self-managed super funds? Perhaps the way funds are managed today they end up to being very expensive index funds.
"These are my own views, not necessarily those of my employer, Future Plus, so if you don't agree you should come after me . and take a number."
Although most fund managers realised in 2007 that stock prices were overvalued, few were comfortable with reducing the equity weightings of their funds due to investment models currently in use that required a minimum level of equity investments, he said.
"Even when we think a stock is dangerously overpriced, all we do is underweight it," he said.
"Forgive me for being cynical, but why do we, when we hate a stock, still put 7, 8 or 9 per cent of my money into it?
"Superannuation has really lost sight of its primary aim, which is to give members the best retirement outcomes."
To create a better alignment between super fund managers and members, he gave a number of suggestions for improvement, including de-emphasising peer risk, reducing fees, the use of dynamic asset allocation to align interest and time frames, the use of passive investment strategies where appropriate and introducing some form of life-cycle investing.
"I don't suggest to go the way of some very formularised thing. Essentially, my point is that a fund's only purpose should be to achieve the best risk-adjusted retirement outcome for their members," he said.
