The Australian prudential regulatory authority (APRA) is responsible for monitoring the performance and governance of Australia’s largest superannuation funds.
In recent years, APRA has actively encouraged mergers of funds to provide enhanced outcomes for members. The argument is basically that consolidation will deliver better economies of scale with lower costs and better services as well as more concentrated expertise.
These may be valid arguments, but there may also be downsides to the “bigger is better” or “less is more” narrative.
Consider three recent scandals:
1. Royal Commission into the banks |
| There was never going to be an appropriate penalty for the behaviour of the banks. Every Australian is a customer of at least one of them and almost every Australian is a shareholder either directly or indirectly. Therefore, a financial punishment simply punishes all of us, not the management responsible.The banks are too big to fail, meaning that poor behaviour can never be adequately addressed, and potential new competitors are discouraged. |
2. BIG4 accountancy firms |
| There have been numerous scandals involving the big four in recent years. One firm gave confidential ATO information to their clients. Another was fined over widespread cheating on online training tests. It wasn’t one or two people. It was more than 1,100.If a firm like ours was involved in such behaviour, it is likely we would not exist next year. We are not “too big to fail”. |
3. Supermarkets |
| Finally, there is the accusation of price gouging by the supermarkets. Whether this is true or not, there are few of us that think the current inquiry will result in anything meaningful. There only two or three of them really and they are simply too big to fail. Fifty years ago, there are numerous supermarket brands. Consolidation has achieved the current set up. |
We are not arguing that dud superannuation funds should not be wound up. Nor are we saying the banks, accounting firms and supermarkets are inherently poor organisations. They all provide us with vital services and in the main do it well. We simply believe some caution is warranted.
If we whittle down to a small number of funds, will they simply all be “too big to fail”. In turn this could create poor behaviour by trustees and management, safe in the comfortable knowledge that they may never be adequately punished, either by member withdrawals or by regulators.
Healthy competition gives members more power to vote with their feet.