Australia’s superannuation funds have nearly the highest proportion of internal asset management in the world, but there’s plenty of questions hanging over the practice even as funds push into more expensive niche asset classes.
The retirement chief of the $335 billion AustralianSuper, who was “instrumental” in delivering a slew of member experience uplifts across a 17-year stint with the fund, will leave this month to establish a new venture.
YFYS and ‘new ways to judge the past’
The public facing aspects of Your Future Your Super (YFYS) risk creating a “pseudo ‘best in show’, according to new research from Deloitte.
The research, titled “New ways to judge the past“, highlights a number of mostly unexamined pain points in the YFYS legislation and regulations – notably around the ATO’s YourSuper comparison tool and website. One of the public-facing aspects of the reforms, through which members are supposed to be able to make an informed choice about their fund before they receive notice of its underperformance, Deloitte is concerned that the comparison tool could see members simply “select the leading fund from the ATO list, believing that it is endorsed by government.”
“A tool based simply on past performance without any explanation of asset allocation or relative investment risks is a crude tool and is, in effect, a pseudo ‘Best in Show’ list updated each quarter,” the researchers said. “We can expect naïve new entrants to superannuation to select the fund at the top of the list (or a well-known brand name close to the top). This will give a temporary advantage to those funds that are ‘Top of the Pops’ in any particular quarter.”
Deloitte suggests that the tool be updated to: group funds in blocks of five to prevent one appearing at the top of the list “by a small margin”; show the size of assets held in MySuper, with many members considering a large fund to be safer; and change the period of measurement to show results over both seven and ten years (fund performance is measured over eight years), saying “it does not make sense to pick a new period without any evidence to justify it.”
“We also note that the ATO website will measure past performance and makes no allowance for superannuation funds that have changed their investment processes, structures or fees, such that the historical measures are no longer valid for comparison purposes.”
“This is ironic given ASIC requires all financial products to include a statement that past performance is no guide to future performance. Further its Regulatory Guide No 53 encourages all promoters (including superannuation funds) to not give disproportionate prominence to past performance in promotions for a product or service.”
Deloitte also anticipates a number of changes to how super funds handle distribution in the wake of YFYS, with employer outreach likely to be curtailed in favour of direct-to-consumer marketing as funds look to build and cultivate distinct brands among newly-stapled members. Potential headwinds include the new best financial interests duty – which will require funds to demonstrate that their activities result in better financial outcomes for members – and APRA’s ongoing expenditure review, with Helen Rowell, the regulator’s deputy chair, telling Parliament that the analysis supporting advertising and marketing expenditure “is probably not as robust as it needs to be”.
While the researchers anticipate that most current activities won’t fall foul of that review as long as expenditure isn’t “excessive”, they concede that the funding of the politically controversial industry bodies may need to be justified with a business case and that a wider crackdown on marketing would be disastrous for funds in the post-YFYS landscape.
“In this evolving environment, any unreasonable restrictions imposed on any fund’s advertising and promotional activities could seriously impede the ability of some market participants to compete,” the researchers write. The research was penned by a number of former staff from Rice Warner, recently absorbed by Deloitte, including Andrew Boal, the company’s former CEO.
