Tuesday, 3 April 2012

Boolmakers Superannuation Fund

The Bookmakers Superannuation Fund (BSF) pays .615% of its assets each year to Super Promoters Pty Ltd to be its "promotor". This has generated millions for the shareholders of Super Promoters since 2004 and enabled them to sell the company for $7 million to Diversa Limited, a company listed on the Australian Stock Exchange. From its formation in 2004, until its sale in 2009, Super Promoters had four Directors (who were also the shareholders) - three of whom were members of the fund's policy Committee and one was the fund's Administrator.

Documents lodged with the ASX revealed for the first time the full extent of this arrangement and it is hard to believe that a scheme like this could be acceptable to supervisory authorities.

The following are just some of the issues that arise from this arrangement:

A Super Promoters received almost $2m from the BSF in 2008 but it's operating expenses were less than $500,000 resulting in a profit of $1.5m to be distributed to the four principals. (In fact, Super Promoters only spent $24,000 on advertising and promotion in 2008.) The obvious question is - Why didn't the Trustee of the BSF insist on paying these expenses directly and save at least $1.5m of members funds ?

B Apart from the cost of this arrangement, there is no benefit whatsoever to the members of the BSF from this "promotion". Part of the arrangement is that the total fee to Super Promoters is fixed at 1.108% of fund assets. This means that increases in total assets could not lead to reduced expenses for existing members - but did result in extra fees to Super Promoters. It also means that the statement in the accounts that it is important that the fund "grow and thereby provide economies of scale" is simply false. Where was the benefit to members ? In reality the average member paid $800 each year to Super Promoters in an arrangement where the only party that could possibly benefit was Super Promoters !

C The announcements by Diversa released to the Australian Stock Exchange were very revealing. They openly state that "the opportunity exists to generate attractive returns from the Super Promoter's business by growing the Funds Under Management". And this is due to the "relatively low cost base which results in an increasing margin and increasing profitability". But this artificial "business" only exists because the fund paid $2 million for expenses that in reality cost less than one quarter of that. The "increasing profitability" is coming directly from member's retirement savings.

D How many superannuation funds pay "promoter" fees ? Is there another superannuation fund in Australia that pays fees to a "promoter" in a scheme like this ? The most likely answer is that in other funds someone in a position to protect members interests, whether a Trustee or a Member Representative, would have rejected a scheme like this at first sight.

E In the Annual Report members are told to direct any enquiries to the Administrator. But the Administrator has been part of the "promotion" from the start (and was able to get $1m from Diversa for his business). Likewise the normal procedure for a concerned member is to contact the Member Representative on the Policy Committee. But in the BSF the Member Representatives were often the same shareholders who received substantial amounts from the arrangement. It seems that in the BSF the very people who would normally protect members interests were part of the arrangement to extract fees from the fund.

F Many members of the BSF joined the fund on the recommendation and high praise from the Committee and senior management of City Tattersalls Club. Almost all of the leading players have been or still are connected with the Club -
  • Of the four individual Trustees before it converted to a Public Offer Fund in 2004, three were Committee members or senior employees of City Tattersalls Club.
  • The former Treasurer of City Tattersalls Club, Keith Free, managed the BSF for many years.
  • The Policy Committee of the BSF, even in 2010, was still composed entirely of Committee members or senior employees of City Tattersalls Club.
  • The BSF operated from an office in City Tattersalls Club for many years.
  • The City Tattersalls Club Staff Super Fund merged with the Bookmakers Superannuation Fund in September 2004. (It would be very interesting to know how this came about.).
G When Super Promoters was set up in 2004, the four Directors and Shareholders were the same four people who had complete control of the Bookmakers Superannuation Fund -
  • The Trustees of the fund, before it became a Public Offer Fund were John Kennedy, Peter Mueller, Peter Hayes-Williams and Ian Buxton. (It would seem to be a blatant breach of fiduciary duty for any Trustee to set up a scheme for their own benefit by exploiting the very assets they are holding in trust for others. And it must be a serious matter when it is done in a Superannuation Fund which has far more stringent regulations to safeguard member' funds.).
  • The Manager of the Fund was Peter Mueller & Associates (who employed Peter Hayes-Williams)
  • The Member Representatives were John Kennedy and Ian Buxton.
  • The Employer Representatives were Peter Mueller and Peter Hayes-Williams.
Incidentally, these Member Representatives seemed to get appointed and replaced without any input from members

Given the circumstances outlined above it is easy to understand that APRA or ASIC would want to have a close look at this "promotion" scheme. It is hard to believe that a scheme like this could be legal.

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