Performance test would likely have missed Shield, First Guardian

ANALYSIS

As AMP Limited and Insignia Financial deal with the consequences of a number of their superannuation products failing the latest Australian Prudential Regulation Authority (APRA) performance test it is worth considering that the test would not have identified Shield or First Guardian.

Why? Because, as explained by AMP Group Executive, Edwina Maloney, the test covers just 3% of the platform market.

The Shield and First Guardian products fell within the 97% of the superannuation on platform market that the test does not currently cover.

As a confidential analysis by specialist research and ratings house, Chant West has pointed out, a few platform products do not have trustee directed products on their investment menu (and are unlikely to ever have any), “so the performance test will never apply to any of the investment options offered by the platforms even thought he member outcomes delivered through these products may be worse than many TDP products that fail the test”.

The superannuation performance test has always been controversial but APRA can validly argue that it has proven its worth with respect to MySuper products in circumstances where, initially, it saw the exit of 13 products and has subsequently given rise to a 100% pass rate.

It also worth noting that of 374 non-platform trustee-directed (choice) products, all passed the 2025 test.

APRA might also comfortably point to the fact that while seven platform-based trustee directed products failed the test this year, 37 such products failed the test last year.

However, what needs to be remembered is that many choice products serve a very different purpose to MySuper offerings, with most being utilised as part of financial advice strategies which can reflect a range of client objectives including capital preservation.

When APRA nearly two years ago began canvassing how it would extend the performance test to choice products it was warned about the complexity of the sector and the dangers of infringing on advice. Those warnings did not slow the regulator down.

At this point, the application of the test is confined to trustee-directed products and the sector is much broader than that and it is appropriate that APRA’s approach is subject to review.

AMP’s Maloney is clearly keen to see that review go ahead having asserted that “the test risks pushing superannuation members out of investment products which are meeting investment objectives and into more expensive, untested and/or potentially riskier products”.

“For example, members may lose access to capital guarantee solutions specifically chosen to provide protection against market volatility,” she said.

“In its current form, the test also imposes an unnecessary layer of red tape and regulation for advisers, which only leads to detrimental outcomes for their clients and undermines the value of professional advice.”