When you receive a letter from your Super Fund telling you that they are going to change the trustee of your fund, what should you do? Should you be concerned? We are going to look at what the role of each part of your super fund is and why you should feel safe and secure because they all have your best financial interest at the centre of anything they do.
What does a Super Fund Trustee do? If you received a letter from Asgard informing you that they are changing trustees, should you be concerned?
A trend in recent years is to drive down fees and improve returns. It is expected that in a decade from now, Australians will have a choice of ten mega sized industry super funds to choose from or the option of “going it alone” and running their own self managed super fund where you have the choice over just about all parts of the management. 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 technically is a super fund?
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.
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. Even self managed super funds.
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?
If it is determined that a change or merging of funds takes place, then a change of trustee may be in the best interest of the members. The super fund will send out a letter via email or post advising that a change of trustees is occurring and that there will be no material financial impact on members accounts.
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.
7 key experts you need to know
- Trustee or trustee director
Trustees are not required to be experts in every aspect of running a super fund, but they have final responsibility for its performance and the actions of any professional experts they hire. 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.
- Investment manager (or fund manager)
Investment managers are specialist investment professionals appointed by the trustee board to invest the fund’s assets. 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.
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. Administrators also help ensure your fund continues to comply with the ever-changing legislation and regulations governing super funds in Australia.
- Asset consultant (or investment consultant – like Longview Economics)
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.
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.
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.
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