A program to enhance super transparency

MBA Financial StrategistsLatest ArticlesA program to enhance super transparency

A program to enhance super transparency

Superannuation fund members have experienced a rollercoaster ride this year as extreme volatility on financial markets has seen investment returns rise and fall, often quite acutely, on an ongoing basis.

The sharp falls on markets in the first quarter of 2020 eroded the gains made by many super fund members over the preceding nine months, resulting in negative returns for some by the end of June.

Then, since the start of the latest financial year, super investment returns have largely been on an upwards trajectory, despite being regularly punctuated by bouts of volatility.

Comparing super returns

In such volatile conditions it's obviously useful to know how your selected super fund product has performed against the broader industry on a returns basis. But that's easier said than done.

There are regular updates from different sources giving a helicopter view of average super investment returns.

They will typically compare the returns from super products that are aligned to investment asset allocation labels, such as "high growth", "growth", "balanced" and "conservative".

The problem is, these labels are generic and because there's such a wide variation in how different super funds are allocating their investment assets, it's virtually impossible to compare products against each other.

Percentage returns analysis is also generally net of investment fees, but before administration fees and other costs.

APRA's data collection program

The Australian Prudential Regulation Authority (APRA) has just released the final consultation package for phase 1 of a major project to expand the breadth, depth and consistency of its superannuation data collection from regulated super funds.

This is part of a multi-year project to make it much easier to examine and reliably compare fund and product performance, especially in the choice segment of the super market.

A particular pain point for APRA has been the ongoing issue of being able to reliably compare super fund investment strategies.

"A lack of industry agreement in areas such as asset class definitions is also hampering the ability to make meaningful industry-wide comparisons, and this consultation seeks to provide clarity and consistency in these areas," APRA notes.

Last week the regulator published a draft reporting standard on asset allocation, which it said will assist it in assessing the investment risks and exposures undertaken by super funds in meeting their strategic objectives.

The standard would require super funds to report on their strategic asset allocations, broken down by asset class, domicile, whether investments are listed or unlisted, and their benchmark allocation percentages.

"It will also improve the comparability and consistency of asset allocation data, to better enable APRA to identify and monitor emerging investment trends and risks across the superannuation industry and the broader financial services sector," APRA says.

Another draft reporting standard has been released around insurance arrangements, where APRA wants to collect more data on insurance policies including premiums, claims payments and processing stages.

APRA has also released a draft reporting standard on expenses, to capture data on how members' funds are being used to pay for costs such as accounting, actuarial fees, advertising and marketing, technology, consultants and head-office expenses.

Separately, at the end of August, APRA released a draft reporting standard on super fund fees and costs that would require super funds to report investment, administration, transaction, advice and member activity fees and costs.

APRA currently collects fee and cost disclosures for MySuper and lifecycle fund products but it wants to extend this to all super products, ultimately supporting its initiatives to improve outcomes for superannuation members.

Next steps

The first tranche of data collected under Phase 1 is due to be published in late 2020.

APRA will use the insights gained from a more complete and granular data collection process to sharpen its supervision priorities and drive better industry practices.

That can only be a good thing, and the regulator says heightened transparency will intensify the pressure on underperformers to lift their game.

Having good transparency around performance, asset allocations, fees, costs and other expenses are all essential elements for every investor in making informed investment decisions, whether inside or outside of the super regime.

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Source : Vanguard September 2020

Reproduced with permission of Vanguard Investments Australia Ltd

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