How can I tell if my super fund provider is in financial difficulty?

AJ Financial Planningmanaged fund superannuationHow can I tell if my super fund provider is in financial difficulty?

I recently reviewed Media Super’s Annual Report after reading a media article that reported them purchasing a 429-year-old violin as an investment. I thought this was an odd investment for a regulated super fund. Was this a responsible decision given the opaque market of collectables and the high transactional costs associated with such investments? And, how did this get past APRA? It triggered me to investigate Media Super’s investment policy.

At AJ Financial Planning, we spend a lot of time digging around in annual reports so I decided Media Super’s might provide some insight in their investment strategy.  Despite being pretty heavy documents, annual reports traditionally follow a simple format for listed companies. However, I soon realised that Media Super’s report was particularly different to that of a normal listed company.

Whilst looking for the investment report, I noticed that all the financials for this company were crammed into page 78 of the 80-page document. The report also bundles members’ assets in with their financial positions, making evaluation of the fund’s business achievements and solvency even more difficult to accurately determine.

As I read the report, I could not help but wonder why this financial information wasn’t featured more prominent in the earlier pages of the document. After all, an annual report is supposed to provide peace of mind to members of the super fund that the business is solvent and operating in an appropriate manner.

So, where does Media Super’s business really sit? Here is an extract of the profit and loss statements from this report from their 2018 annual report.

As you can see, there is not a heap of detail, but I noticed that the fund, not the members, appears to have made a loss of $14,896,000 in 2018. I went back and looked at the 2017 report, and this recorded an even larger loss of $20,966,000. Looking at these numbers, I would have thought the directors would want to spend some time explaining these losses – if they have been perhaps misinterpreted in some way.

Media Super has reported however that they have $40,099,000 in net assets, in addition to the trustee operating account, reserves and operation risk reserve, so they are not about to run out of money tomorrow.

But it does raise a more serious question about the regulated format of the annual reports a super fund produces and the role ASIC and APRA have in evaluating if the reports provide members with enough necessary information about the solvency of the company and also the performance of the fund’s investment choices.

So next time you are considering switching or looking at your super fund provider, you might want to look beyond the investment returns of the fund and think about whether the provider is actually making a profit or loss. Equally, it might also be a concern if the fund appears to be too profitable, as this could be an early warning sign that they are gouging their members’ contributions.

Like all great investment ideas, it is important that you seek professional advice from a practising financial planner before making any changes to your superannuation fund and, of course, I recommend you contact us at AJ Financial Planning.