11 minute read
Do heat maps work when one size does not fit all?
Do heatmaps work when one size does not fit all?
The Australian Prudential Regulation Authority may not have taken enough account of the different member demographics and the different investment objectives of superannuation funds in developing its heatmaps, according to a roundtable of senior superannuation executives.
AAs the superannuation industry has moved in 2020, executives and trustees have continued to express concern about how the Australian Prudential Regulation Authority’s (APRA’s) inaugural heatmap exercise may have misrepresented the performance of some funds. A roundtable conducted by Super Review during the Association of Superannuation Funds of Australia national conference in Melbourne and ahead of APRA’s release of the heatmaps revealed that some of the industry’s most senior executives had legitimate concerns about the regulator’s approach, not least whether APRA could or would recognise that one size does not fit all. The broad concerns of the executives of the roundtable, sponsored by Tech Mahindra, were reflected by NESS chief executive, Paul Cahill, who said there needed to be a clear understanding of what constituted performance for superannuation funds. “Performance from an investment perspective is one thing, but what about insurance, what about ATTENDING: Russell Mason Superannuation partner, Deloitte Paul Schroder Chief risk officer, AustralianSuper Ben Facer Chief operating officer, NGS Super Alex Hutchison CEO, EISS Super Andrew Proebstl CEO, LegalSuper Paul Cahill CEO, NESS Super Andrew Boal CEO, Rice Warner Jeff Fernandes ANZ country head, Tech Mahindra Chair: Mike Taylor, managing editor, Super Review
governance and other matters,” he said. However, he said that the importance of investment performance should not be under-estimated.
“If you can generate good performance, people will follow,” Cahill said. “Good performance will drive a lot of members through the door.”
NGS Super chief operating officer, Ben Facer, agreed with Cahill but said that while investment performance was obviously a key fact, it was not the ultimate determinant.
“Obviously it [investment performance] should have very heavy weight because it is a key driver of outcomes but we should not be looking at just absolute performance,” he said. “Funds are different with respect to profiles and objectives. If there are two funds with two separate sets of objectives you would expect them to perform differently.” EISS Super chief executive, Alex Hutchison, said he believed any assessment of superannuation funds should not ignore the concept of “social license”.
He said that, on that basis, he believed financial and non-financial metrics should be given equal weight.
“We [EISS Super] are an outlier fund. Our members have balances which are three times greater than the industry average and we have lots of reginal members within an industry that is going through structural change,” Hutchison said. “How do you measure social license? Well, when I’m in Broken Hill I don’t see any of the ‘reg tech’ funds coming out there to service members, but we’re there,” he said. “Our promise to members is preservation and so on a pure investment return point of view, we are bottom of the table because we are about capital preservation. My fear is that because we are an outlier we will not be appropriately measured [in terms of the heatmaps],” Hutchison said. “Hopefully, there can be a mature dialogue about how that is measured and treated,” he said.
Rice Warner’s Andrew Boal said he believed that a risk-adjusted approach was critical to the acceptance of the heatmaps “Whether objectives are achieved ought to be the main issue,” he said. “A fund meeting its own objectives should be adequate for the heatmap. There should not be undue reference to other funds.” Boal said that funds should be measured against their own objectives and their own benchmarks recognising that diversity was important. “I don’t think it is healthy to have all funds looking the same and trying to do the same thing,” he said.
AustralianSuper’s Paul Schroder said that notwithstanding some misgivings around the heatmaps, he welcomed the involvement of APRA in measuring fund performance and believed the industry needed to accept it as an iterative process.
“We’ve had a history of Morningstar, Chant West and SuperRatings all trying to rate funds. We should welcome APRA trying to do this,” he said. “Whether it is initially accurate is one thing, but we welcome the idea that APRA is going to become involved in this discussion because the general public has no idea and they need someone to help guide them through it.” “I think the general idea that APRA is going to use general data that is explained is a positive, but the first outing won’t be 100% right,” Schroder said.
Deloitte’s Russell Mason said that it was imperative that APRA both communicated and consulted with trustees and that funds had every opportunity to put their case and remove any misconceptions that APRA might hold.
“My concern is to avoid alarmist media commentary,” he said. “Just because a fund is deemed poorly-performing in APRA’s eyes doesn’t necessarily mean that members’ money is at risk given the secure nature of our system.’ “We have got to make sure that members don’t become alarmed that their fund is just another pyramid building society losing money,” Mason said.
Continued on page 14
Protecting Your Super Package – lessons learned or ignored?
Ahead of the Government embarking on the next tranche of legislation impacting insurance inside superannuation, industry participants are concerned that lessons have not been learned or the future dangers recognised.
The consensus of the Super Review roundtable was that the implementation of the Protecting Your Super Package (PYSP) had been rushed and that both funds and insurers had been given insufficient time to ensure the best interests of members. Reflecting this view, EISS Super chief executive, Alex Hutchison, said he hoped that the appropriate lessons had been learned.
“We were confronted with unrealistic time-frames which created unrealistic pressures on participants in the value-chain and created in unnecessary risks,” he said. “I don’t think anyone would have been able to implement PYSP as they would have liked to.” “Our fund, because of how we run, was able to ring every single person affected. We were able to do that but in the end the numbers of people opting back in [to insurance inside superannuation] appears to have been same as elsewhere in the industry,” Hutchison said.
“So, my fear is that in the future the not having insurance effect will have an effect.” Deloitte’s Russell Mason said that he believed there should be concern around the longer-run impacts of the Government’s changes.
“The real impact could be five or 10 years down the track when members start to die or become disabled and say ‘I did not understand and I was not properly informed. I now realise I do not have insurance cover which I wanted to maintain all along’,” he said. Mason said such occurrences were not unusual when superannuation funds merged and members did not act to maintain cover through the process and the bottom line was that the many determinations handed down by the Superannuation Complaints Tribunal (SCT) had seen cover reinstated.
“People don’t appropriately understand the issue,” he said. “If you went out there in the community and asked people if they had any understanding you’d be impressed if 5% could give a vague explanation.
AustralianSuper’s Paul Schroder said that a binary debate had evolved with respect to the value of insurance inside superannuation – on the one side it was ‘insurance bad, get out’ while on the other side it was ‘insurance good, keep it’. He said the bottom line was that what had occurred was a radical departure that would inevitably increase the price of insurance and make it less attractive to some people.
“So, we have this debate about is it good or bad? I think we are on the precipice of having to rethink the value of insurance inside superannuation,” he said.
While not disagreeing with Schroder, Rice Warner’s Andrew Boal said that the industry had made mistakes and would need to ensure these were not repeated.
“The industry has made some mistakes along the way which have made it easy to be criticised because we have overcharged some cohorts,” he said.
NESS Super’s Paul Cahill said that while the implementation of the PYSP had been challenging, superannuation fund contact centres had been the difference between success and failure in circumstances where there had been stories of some administrators giving up.
He said that from monitoring his own fund’s call centre, he had noted that the most frequent callers had been the mothers of young members who wanted to ensure their sons’ best interests were being protected.
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The value of endorsement
Rollover reckons it’s no secret that a number of Government backbenchers and, indeed, a number of front-benchers have been questioning the compulsory nature of Australia’s superannuation regime. Among those who have sought to participate in the debate have been the likes of former Financial Services Council (FSC) policy apparatchik, Senator Andrew Bragg, former IPA staffer, Senator James Patterson and, apparently, the somewhat lesser known and recently-elected Queensland Senator Gerard Rennick.
Rollover doesn’t know much about Rennick, but a quick Google search reveals that he holds a Bachelor of Commerce from the University of Queensland and a Master’s degree in Taxation Law from the University of Sydney having grown up in that epicentre of progressive thought, the Queensland Darling Downs. Oh, and he also apparently believes superannuation is a “cancer”.
Rollover also notes that Rennick has earned the admiration of a chap in New Zealand named Branton Kenton-Dau whose website states he is “interested in understanding complex systems to the point where their structure reveals itself with childlike simplicity”.
And being noticed by Kenton-Dau should be counted as a feather in Senator Rennick’s cap particularly if he is the same Branton Kenton-Dau who in 2002 wrote an open letter to President Bush offering US investors free access to his firm’s (MetaWealth) ratings of over 100 US firms. He is possibly also the same Branton Kenton-Dau who in 2008 was being interviewed as part of VortexDNA which was looking into the human genome and who in 2012 was reported in Super Review itself as having lauched a tail-risk product for the ASX200 based on data gathered by NASA on space weather patterns.
Where have all the superannuation ratings houses gone?
Remember when there was SuperRatings standing proudly as a ground-breaker in providing ratings to superannuation funds? Remember when the sometimes irascible Warren Chant set up Chant West? Well, as readers have probably already noted, these days SuperRatings is all part of research and ratings outfit Lonsec while, in mid-February, we learned that Chant West has been acquired by another research and ratings outfit, Zenith. Of interest ought to be that the combining of SuperRatings and Lonsec resulted from the private equity involvement of Mark Carnegie, while Zenith’s embrace of Chant West follows from Zenith itself having taken on board some significant private investors.
Rollover reckons that the clear message in all these transactions is that the ratings game is getting tougher and having a foot in both the wholesale and retail markets is an advantage. The competitive pressure may be rising, but Rollover doubts super funds will be seeing any reductions in fees. RATINGS AND THE URGE TO MERGE
Where have all the super millionaires gone?
For as long as Rollover can remember, some sections of the media have been writing about superannuation being a tax rort for high income earners. In terms of anti-superannuation stories it has become a “hardy annual”.
And the truth is that, in the past, the tax and regulatory structures did give rise to people holding multi-million dollar balances but those who believe this continues to be the case have significantly under-estimated the revenue-appetite of successive Federal Governments.
And you know that times are tough when it is the accountants who are complaining about the erroneous nature of reports about multi-million dollar balances.
CPA Australia wants no one to be misled about super millionaires, declaring: “Discussion in the media of the handful of superannuation accounts with balances over $100 million ignores the reality that due to the imposition of the transfer balance cap, only a maximum of $1.6 million can remain in the pension phase of superannuation”.
“It also disregards the reality that current high balances are an aberration which will wash out of the system as the limit to contributions via the total superannuation balance limit increasingly has an effect.”
Rollover feels sure that while CPA Australia has laid out the facts, those facts will not stand in the way of the next superannuation millionaire horror story.
