By Stuart Washington
When you have made a superannuation investment, I bet you haven't paid too much attention to the word ''trustee'' in the marketing material.
Don't worry. You're hardly alone. But, rather belatedly, it now stands clear that the owner of the word ''trustee'' can be the difference between your investment being a success and a horrible failure.
It's with some force the broader superannuation and investment industry is digesting the fact that trustees are gatekeepers, with real responsibilities and real duties.
The word ''real'' here should be interpreted as meaning cold, hard cash payable to investors.
Sure, there has been a lot of lip service about the importance of trustees and governance and blah, blah, blah. But a trustee being brought to book for the dud investment it happily sat by and watched investors flock into? Such an event has been practically unheard of - until now.
The fact of trustees' liability has been brought to the fore with the $29 million settlement achieved on Friday by the law firm Slater & Gordon for investors in Fincorp, which collapsed in March 2007.
Slater & Gordon argued that Fincorp's trustee, Sandhurst, had stuffed up. Or, to put it more elegantly, the class action lawyers argued Sandhurst needed to ''exercise reasonable diligence'' to make sure investments of Fincorp would be sufficient to repay Fincorp note holders. Sandhurst doesn't agree, but it's still coughing up the cash.
The unusual nature of the gatekeeper argument is highlighted by the Sandhurst case being one of the few times trustees have been held to account for the failure of the underlying fund.
The role of trustee has long been one of those mysterious functions that are paid for by ''crumbs'' from your investment. The trustee doesn't manage the money. That's done by fund managers. Nor does the trustee swear to the money being put where it is supposed to be put. That's done by the custodian. Nor does the trustee run the investment on a day-to-day basis. That's done by the administrator.
(I know what you're thinking, and you are right: that's a lot of ''crumbs'' falling off your investment.)
So what does the trustee do? Well, the trustee is responsible for the governance of the superannuation fund. The trustee's close relative, the responsible entity, has the same role over in managed funds.
But what is a trustee's main skill? As Fincorp's investors have found, the main skill is to be big enough to stick around and cop a $29 million bill - then pay it.
Fortunately for the Fincorp investors, who stand to receive between 6¢ and 75¢, Sandhurst is owned by Bendigo Bank. And while Bendigo Bank won't be pleased, it's big enough to cop the bill. But what of our other trustees and responsible entities? Under current settings, there is only need for $5 million in capital, an insurance policy, and away you go.
Of course, this was found to be nowhere near enough when Trio Capital - acting as a trustee and responsible entity - managed to ship $125 million offshore without blinking. All that money was lost, and as soon as the going got rough, the responsible entities went into liquidation and the trustees had to be taken over.
Therefore Trio's inability to stick around has cost the industry more generally. The $55 million in government compensation will be coming to bite the superannuation industry in the form of an industry levy.
Now excuse me while I express some surprise that Trio's doomed business model, advanced by the Association of Independently Owned Financial Planners, is being rolled out again by exactly the same industry organisation.
The association's members were over-represented in the Trio Capital collapse, helped along in the case of Tarrants in Wollongong by a $840,000 marketing payment.
But those minor irritations are not about to stop the indefatigable head of the association, Peter JohnstonIn a recent letter to his members Johnston ranges widely. First, he offers some free advice about how to avoid some of the effects of the federal government's move to strip financial planners of commissions.
Johnston helpfully highlights the July 1, 2012, start date for the reforms, noting ''a 14-month window of opportunity''.
He says financial planning businesses will be divided into clients who sign up ''pre'' and ''post'' the start date of the reforms, ''with the pre clients representing the most valuable asset to sell and/or manage''.
Now, skipping over the association's blatant attempt to game the federal government's move to ban commissions, Johnston's message becomes even more chilling.
He has a new investment platform offered through Asgard, and no problems there. It's owned by St George.
However, the Asgard model gives association members the opportunity ''where the custodial, administration and trustee/RE role is either outsourced or performed in-house''. Wow. Good work, Peter. Your guys did such a good job in finding a trustee with Trio Capital.
I can't wait to see who you come up with this time.
For the investor who is actually hoping to see their money at some stage in the future, however, it is worth remembering the following: read the fine print to find out whether the trustee has deep pockets. It could cost you dearly if it doesn't.