New APRA powers a potential win for SMSF sector
Stronger powers given to APRA to help combat underperforming super funds may see a reduction in the investment options and investment choice offered by public offer funds, restoring some of the appeal of SMSFs, says a technical expert.
Last week, the government passed the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No 1) Bill 2019, which provides APRA with the power to take civil penalty action against trustees and their directors for breaching their obligations to members, including the duty to act in the best interests of members.
Ahead of the passage of the bill, APRA contacted trustees of large public offer funds, explaining what its expectations were in terms of articulating and measuring their performance.
In the letter, APRA made it clear that investment performance would need to be considered on a risk-adjusted basis net of investment fees over varying time periods.
Speaking to SMSF Adviser, SuperConcepts executive manager of SMSF technical and strategic solutions Philip La Greca explained that the new guidance from APRA will essentially mean that, for every investment option available, the super fund will need to have a benchmark for that specific option.
“If a super fund has an investment option to invest in BHP shares, they will have to have a benchmark for that,” Mr La Greca explained.
“So, if you’re going to offer the ASX 200, as distinct shares, that means you need 200 benchmarks. One for each stock.”
The legislation requires APRA funds to not only measure different investment options on offer, but to measure them against prescribed benchmarks set by APRA, he said.
Given that public offer funds will now have a significant volume of benchmarks that they need to apply to these investment options, and will also need to monitor the performance of these options, they may decide that it’s not worth continuing to offer them, Mr La Greca explained.
Mr La Greca said that this may see large public offer funds go back to offering a standard range of fund options — such as diversified, conservative, balanced, growth and aggressive funds — and maybe a few asset class-specific options such as cash, bonds, Australian equities, international equities and property.
“So, we may actually see a reduction in the number of options,” he said.
“This may mean that those people who want to do something outside the standard options that the APRA-regulated funds offer, may turn to SMSFs as an alternative way of investing the way they like, because the trustees of APRA-regulated funds may not continue to offer as many choices.”
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
