Accounting groups point to ‘gaming’ of super performance test
Two major accounting groups have claimed to have already seen evidence of the Your Future, Your Super (YFYS) superannuation fund performance test being “gamed” by super fund trustees.
In a joint submission to Treasury, CPA Australia and Chartered Accountants Australia and New Zealand pointed to ‘gaming’ of the superannuation performance test as one of the unintended consequences of the regime.
As well, the accounting groups have warned that the letter ‘failed’ superannuation funds are compulsorily required to send to members is actually tantamount to the provision of personal financial advice.
“It is hard to disagree with trustees being asked to justify why their fund’s investment performance is below an acceptable standard and/or their fellow trustees in other superannuation funds. However, we remain concerned about unintended consequences with these periods of assessment.,” the submission said.
“We believe that in some cases trustees may be willing to take on more investment risk in order to recover from poor investment periods and/or adjust their portfolios into more acceptable assessment benchmarks. In short, we are concerned about the system being gamed,” it said.
“We are already seeing evidence of this unfortunate aspect. In any event, we consider that a twelve-year time period may be better for such assessments. Superannuation is a long-term investment, and we believe that this timeframe encompasses the vast majority of minimum recommended time horizons in place for most investment options.”
“Regardless of the period used, it also may be that some trustees could successfully argue that some actions are in their members’ best financial interests but may not be able to argue that those actions are in those members’ best interests.”
On the question of the letters from ‘failed’ funds, the submission said that within the letter, members are referred to the comparison tool.
“Again, it is possible for a product to have performed poorly in the performance test yet rank well in the comparison tool. There is also no mention of insurance and the risks of losing cover if the member switches products, especially for dangerous occupations.”
“Arguably, the compulsory letter seeks to provide personal financial advice when funds cannot have sufficient member information to be making such statements to members. In addition, they may not have an Australian Financial Services License with suitable authorisations to be making such statements.”
“We consider that any relief provided to trustees for issuing these letters obscures the fact that, although not in law, members can quite reasonably infer that they have received personal financial advice. The impact on members reading such notices must be considered, both in anticipation of actions which they may take and tools presented to assist them with choices.”
More bureaucratic and government over reach.
The problems with this system could be seen WELL before it was implemented. The govt, regulators and bureaucrats have this amazingly arrogant attitude that they KNOW how every thing works, that it is all broken, and only their hard intervention can possibly resolve all problems.
They are in fact inept, have no industry knowledge and are either naïve, stupid or both, if they think they can possibly know the answers to all ills. Real or perceived ones. The money wasted by funds (especially union funds using members money instead of shareholders money) to dodge the YFYS bullets would likely outweigh any performance “benefits”. of this stupid system. (note disclaimer – have no interest nor been personally/business impacted by YFYS).
Thank you to CA and CPA for the effort but you are wasting your time, the arrogance of government and their bureaucratic foot soldiers knows no bounds and are protected by gigantic walls of hubris and moats of naivety. You will not breach these fortified defenses.
I despair that we are forever condemned to be ruled by idiots.
You said it perfectly Wildcat. Bravo. This whole thing was designed by people who clearly have no knowledge or experience with investing. Do they honestly think super funds are not trying hard to perform already and that some are just sitting there allowing poor returns. It beggars belief after all the studies showing how hard it is to add alpha, these clowns think that a $250bn fund should be able to do so based on the skill of their staff. There is only one way to ‘perform’ and that is to load up with unlisted assets and value them yourself to manufacture the return you need or load up on growth assets in a bull market (bad luck when the bear market comes). To think that funds who decided to reduce risk during the momentum run of 2021 are punished by this ridiculous test because their returns were below the risk takers, is staggering. Those so-called underperformers would have done quite well (in a relative sense) in 2022 as markets reversed but I doubt the regulators even understand that. What a world we live in. I liked it better when real experts where in charge. It’s all just politics now. Maybe we could send some of these paper shufflers to the Portfolio Construction Forum before they start crafting policy like this. And don’t get me started on the goal to create 5-10 giant super funds struggling to deploy capital and privatising ASX listed companies. There’s your next disaster. Well played Canberra. Let’s wreck one of the best retirement systems in the world.
An excellent example of why super fund vertically controlled, in-house intrafund advice should be banned..
Funds hiding behind false valuations of direct assets, or “Balanced” funds with 92% in growth assets might be a more worthy target of your frustration.
“We consider that any relief provided to trustees for issuing these letters obscures the fact that, although not in law, members can quite reasonably infer that they have received personal financial advice. The impact on members reading such notices must be considered, both in anticipation of actions which they may take and tools presented to assist them with choices.”
I find this an interesting comment. Any fund that has a link to or a page dedicated to a fund comparison tool may be inadvertently providing personal financial advice. Especially where this is provided publicly to non-members of the fund knowing that they may make decisions based on the outcome of the comparison.
We all know comparing super funds to apples does not make sense especially when the detailed reports show significant issues to consider about certain funds around conflicts, size etc.
I have seen several of these letters, but nowhere in the letters does it mention to seek “unaligned” advice, nor point to “speak with an adviser listed on the FAR”.
Most of it is “contact us to change your investment choice” or “if you want more information or advice contact us and we’ll point you in the right direction”.
You can guess what “advice” and “information” is provided…
Of course the Industry Super Funds will game the system. They already have been gaming the system. They have one agenda only (I.e. Take a clip on every dollar they get into their funds). They should have been dealt with in the Royal Commission, but because there trustees were effectively running it they weren’t touched, and now the trustees want to represent as pseudo advisers after attacking the advice industry for the past 10-15years. What an absolute joke. The greatest conflict of interest in the history of Financial Advice.
If you let trustees give you Financial Advice to there naive members when they own the product then the government truely has no ethical backbone, and in my mind is committing a grave offence against the public. It’s shameful behaviour.