APRA warns of painting choice sector red

The Australian Prudential Regulation Authority (APRA) has placed superannuation funds providing choice products on notice that they are close to being named and shamed in bright red if their investment fees and performance are not up to scratch.

At the same time the regulator has made the clear declaration that it believes large funds are better at delivering lower fees and higher investment performance.

APRA deputy chair, Helen Rowell made the position clear to this week’s Conference of Major Superannuation Funds (CMSF) in Adelaide that the regulator is ready to apply its heatmap methodology to the choice sector and that the outlook may not be good.

“The choice heatmap is set to highlight in bright red precisely which multi-sector products are charging the highest fees or have the poorest investment performance. So, all trustees would be wise to be taking a close look now at the outcomes they are delivering for their choice members and taking proactive steps to fix any identified weaknesses,” she said.

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“Another area where we would like to see numbers ticking down is the number of funds, products and investment options,” Rowell said.

“APRA has been pushing hard for several years for more fund mergers. This isn’t simply about weeding out persistent underperformers, or making the sector easier to navigate for members – although both are important. It’s also about scale.

“All things being equal, the evidence suggests that larger funds are better placed to deliver stronger investment performance and lower fees. As the operational capability needed to run a successful superannuation fund generally increases with technological and regulatory developments, scale is becoming a more important determinant of member outcomes.”