Advisers care about super funds’ future performance, not the past

Financial advisers are not concerned about what fees superannuation funds were charging five, eight or ten years ago, they are more concerned about what fees will be next year, according to the Financial Advice Association of Australia (FAAA).

As the Government and the Australian Prudential Regulation Authority (APRA) contemplate extending the superannuation performance test to ‘choice’ funds, the FAAA has made clear that advisers are much less focused on past performance and far more interested in future performance.

In doing so, it made clear that it is not particularly enamoured of a ‘choice’ performance test adopting an eight to10 year time horizon.

In a submission responding Treasury’s consultation around design options for the superannuation performance test, the FAAA said that whilst longer term performance testing results for some funds/options, consistent with the 8 – 10 year timeframe that has been tested so far, may have been poor, the fund or options more recent performance might have been strong”.

“From an adviser’s perspective, recent performance is very important, and poor performance that is over five years ago, yet still captured in the testing regime, is less relevant,” the FAAA submission said.

“Advisers are unlikely to recommend a client move away from a fund with strong three year performance, because the 8 – 10 year performance is poor. The longer-term performance timeframe does tend to penalise funds for the long term, making it very difficult to recover.”

The FAAA also pointed out that performance measure took no account of service standards and product functionality in circumstances where, inevitably, high service standards and more complex products would cost more.

“This testing regime does not call out funds who have low service standards,” the FAAA submission said.

The planning organisation said that it also had reservations about extending the performance testing to retirement phase products, particularly annuities that could not be readily compared and were significantly impacted by interest rates at the time of commencement.

Further, it said that was both unnecessary and inappropriate to extend the testing regime to other products such as self-managed superannuation funds, direct assets and defined benefit funds.