Choice heatmap will purge weaker products: APRA

The Australian Prudential Regulation Authority (APRA) has indicated that the 2021 Choice Heatmap will drive the removal of weaker products, options and funds from the industry.

Speaking at an Association of Superannuation Funds of Australia (ASFA) briefing, APRA member, Margaret Cole, heralded the expansion of the heat maps to choice options as an important step to improving transparency and member outcomes.

“Our active supervision of underperforming MySuper products over the last two years has driven substantial benefits to members in the shape of reduced fees or members moving or being moved into better performing funds,” Cole said.

APRA had utilised data from SuperRatings to look at more than 700 multi sector investment options representing 40% of total member benefits in the choice sector and found 60% of choice funds this year failed to deliver returns above the heatmap benchmark.

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Meanwhile 45% of MySuper products delivered returns below APRA’s heatmap benchmark.

“Some areas of significant underperformance are clearly evident and impacting a higher proportion of products than in MySuper,” Cole said.

“We intend to expand the coverage of the choice heatmap in coming years in line with the expansion of the super data collections we are receiving.

“No doubt some will quibble about what has been left out this time around, but I encourage you to put your focus on what we've been able to capture which you'll see has unearthed some interesting results.”

She said most trustees in the choice heatmap had more than one investment option that had failed APRAs benchmark but concerningly, a small handful of trustees held products in which at least half or all had failed.

Cole said the next step for trustees was to improve member engagement and assess the outcomes they were delivering to members.

“The heatmap shows that many trustees will need to explain why their choice investment options underperformed peers and benchmarks, why their fees are so much higher than others and what changes they're going to make to fix this,” she said.

“I have heard from some trustee board members and senior executives how very difficult getting strong member engagement is, and I can recognise that.

“But super funds pay close attention to member engagement when it comes to attracting new members, so I feel sure all these highly intelligent driven people can find a way.”