With superannuation funds before the financial services royal commission in two weeks, lobby group COTA Australia has raised the prospect of regulating super fund returns in a similar way to energy companies.

Ian Yates, chief executive of COTA Australia (formerly Council on the Ageing), said that the lower returns earned by for-profit super funds in comparison with not-for-profits was a cause for concern and the regulatory change should be considered to deal with it.

“In a compulsory system is it credible to use super returns to benefit stakeholders other than fund members?” Mr Yates asked.

“I’m not saying there is no role for for-profit funds but there is a discussion that needs to happen about maximising returns to consumers.

“The government regulates the margins energy companies earn on assets. Maybe it could do the same for super funds.”

Regulation could include a “reasonable” return to private owners of funds that would only be paid if adequate returns had been paid to fund members first, Mr Yates said.

Recent figures from research house Chant West showed that not-for-profit industry and government super funds had earned significantly higher returns than their for-profit retail counterparts over all periods surveyed.

The royal commission has called for superannuation details from the major financial institutions, including the big four banks and AMP about low fund returns, fund fee levels, the slow move by private funds to provide low-cost MySuper options and directing clients to in-house products when others may have been more suitable.

Industry funds are being asked some of these questions as well as being probed about alleged spending of members’ funds on outside activities.

Martin North, principal of researcher Digital Financial Analytics, said the commission was likely to examine “why the returns on retail funds have been significantly lower, the transparency of fee disclosure and the disclosure of returns”.

Research from investment bank UBS last year showed that the major banks and AMP averaged profit margins on funds invested for their clients of 64.7 basis points, or 0.647 per cent, compared to 0.58 per cent for industry funds according to another researcher, Stockspot.

Wealth management profits in 2017. Source: UBS

Mr North said there were questions about the viability of the for-profit super fund model because “it has to return about 10 per cent to shareholders” to operate.

All the major banks except Westpac are selling down their exposures to wealth management and superannuation because it has not been as profitable as they hoped. Publicity about a range of financial scandals emanating from the banks’ wealth management businesses have made it even less attractive for them.

Royal commission extended

The royal commission has been extended with the announcement on Friday that it would have two extra weeks of sittings in November focusing on policy questions resulting from earlier sittings.

Mr Yates said an issue that needed examination was the power of regulators in the face of big institutions.

ASIC’s new powers to deal with bad financial products were “good but it took a long time to get there”, Mr Yates said.

“They should be able to be proactive in disclosures about products rather than waiting until after the damage has been done,” he said.

Those called to appear at the commission include AMP, AustralianSuper and three of the big four banks. Westpac avoided examination. ASIC and APRA will also give evidence.

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