Despite being a growing reservoir of funds under management, this critically important pool of capital is confronting mounting problems collating and disseminating key data in a timely manner.
The ratings house is pinning its growth strategy on a revamped methodology that increases the emphasis on governance to 25 per cent – a timely move considering APRA’s proposed reforms.
Productivity Commission sets the scene for more of the same
The Productivity Commission is likely to have a heavy focus on systemic dynamic efficiency in its forthcoming review – with fees and charges being a key element. Participants in the various market segments should take note of the hints in the recent draft report.
The report “How to Assess the Competiveness and Efficiency of the Superannuation System” when finalised in November, will establish the assessment criteria and indicators to be used by the Commission when it conducts its actual review scheduled to begin after July 2017, following the full implementation of the MySuper changes.
The draft report acknowledges the primacy of efficiency over traditional concentration yardsticks. In that regard, the Commission has flagged that it will look closely at economies that are being achieved – and can be achieved – both of scale and of scope.
Some of the remarks around efficiency go to super funds wanting to maximise the efficiency benefits of pooling backoffice functions but still to differentiate their member services.
In addition to delivering fodder for economic theorists, the draft report reveals insights into how the Commission sees the issues – and how it intends to approach them.
The Commission acknowledges that the superannuation system as a whole operates on two levels – retail and wholesale. Super funds can either staff up internally to support their member offerings or seek economies through procuring services at the wholesale level. And they do so in an environment that the Commission acknowledges is “highly connected, dynamic and very complex”.  In some instances which are tightly regulated outside of the super system itself – such as audit and custody – there is no real “internal option” – and the Commission has noted historic (2012) data that show high level of concentration in the provision of such services.
This complexity in the wholesale level of the super system is sure to have a strong influence in both the Commission’s development of assessment criteria and indicators and in the review itself.
The draft report puts forward the propositions that “competition is a means to an end” and that “an efficient superannuation system broadly means costs are minimised, returns maximised, members placed in the most appropriate investments based on their preferences and needs, and that the system embraces innovation and technology to improve outcomes over time”.
A question that may arise in the next phases of the Commission’s work could well be the respective roles of internal teams and the external economies available through external wholesale providers in the pursuit of efficiency.
The Commission has made it clear that SMSFs will be included as part of the review. An interesting question may well be; how to apply the lessons from examining the efficiencies available to funds through the wholesale providers to the SMSF sector?
In a rarity in the current cycle, the report makes no mention of “block chain” or of “distributed ledger technology”.  Wholesale providers to superannuation funds of both investment and administration services will need to keep abreast of the technological developments, but it is interesting to note that the report makes no mention of blockchain or distributed ledger technology – perhaps the only financial inquiry of the past few years to do so.
– Greg Bright
