Advice makes ‘choice’ performance test a tough nut – APRA
The Australian Prudential Regulation Authority (APRA) has had to admit that the provision of financial advice to people to join particular choice superannuation products makes persuading those people to change “a hard nut to crack”.
The regulator has admitted during Senate Estimates that applying the APRA heatmaps and the Your Future, Your Super superannuation performance test to choice funds is going to prove challenging because members of those funds have made a conscious choice to be there.
APRA’s deputy chair, Margaret Cole said these challenging had arisen notwithstanding the analysis that choice funds, and particularly closed choice funds, have been performing worse than MySuper funds.
Asked by Senate Economics Committee chair, Labor Senator, Jess Walsh the basis of APRA’s approach to choice superannuation funds, Cole said the choice heatmap published in April showed worse performance than you would see in MySuper as a headline.
“Certain issues were particularly stark and one of those was that the worst performance was in the closed choice product areas and there are issues getting members out of the closed funds and one of those is a tax issue,” she said.
“So, for me, it revealed that we have got members who are not being served by being in well-performing funds and there is a real problem with how that gets addressed.”
‘So, in relation to this year’s choice heatmap we saw slightly less products that were non-performing products than in the previous year. I think in the previous year there were 25% that failed the benchmarks and this year it is 20% and one thing that demonstrates is the efficacy of the heatmaps in putting some transparency around performance because it does show that some trustees have tried to address the issue but that is a small change and the big picture is that it is worse than MySuper,” Cole said.
“We are moving forward shortly when we get the regulations finalised with the choice performance test which we hope to conduct in April and that will have consequences but we use the heatmaps as a supervisory tool and with information from the heatmaps our supervisors can push forward into conversations and actions with those trustees where we’re seeing difficult outcomes.”
“But there are a range of points to be considered there which do have some validity about why it is harder to get trustees to be able to merge with a higher-performing product such as the capital gains tax issue – there are some real issues about people who have chosen to be in those funds because they have been advised and they may have other reasons for wanting to stay in those funds,” Cole said.
“So, this is a tougher nut to crack in terms of using our powers of persuasion to get trustees to get those people into better performing products because there are some really valid points there.”
Particularly since some “closed ” funds have performed as well or not better than many “passed” funds over the last 3 years. This is a joke
APRA & ASIC until you address the Industry Super Funds with 94% Growth Assets that call themselves Balanced Funds, this whole exercise is for Peanuts.
Hasn’t AustralianSuper just admitted it’s overweight unlisted Property hasn’t worked ? And yet 50% + of this property was labelled Defensive Asset.
Address the basics first Govt Regulators before tripping over more details.
One under performing industry super fund instructed with a closure notification was advertising it’s “award winning performance” on the front page of their site. …then via a link on the next web page was a notification that the investment option was now closed due to two years of under performance. These are the people that the Government are trusting to provide Advice.
It’s not a tough nut, it is redundant. APRA need to focus on their job rather than delving into financial advice. They are not the experts in investment performance and the supposed benefits of the performance test are starting to look highly questionable.
Anyone measuring a funds performance just over a 12mth period and then encouraging them to move is an absolute fool. This practice of using heatmaps is absolutely flawed, unethical, and is basically providing ‘personal advice’ to members without personal knowledge of a members actual circumstances. The government is setting themselves up for litigation, as they did when they started cancelling individuals personal insurance without proper thought or investigation into the consequences.