Don’t rank super products via APRA heatmaps: FSC

The MySuper heatmap should not be used to rank superannuation products and members should not rely on simplistic league tables, the Financial Services Council (FSC) has warned.

Earlier today, the Australian Prudential and Regulation Authority (APRA) published its MySuper heatmap.

FSC chief executive, Sally Loane, said it was important to understand that the heatmaps were a point in time analysis but it did not tell the whole story when it came to members’ retirement outcomes.

“Particularly for lifecycle products, which adjust investment strategies over a person’s lifetime, the headline numbers in the heatmap don’t reflect the actual experience of a member in that fund, and could be misleading if viewed in isolation,” Loane said.

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Loane urged super fund members to consider what they wanted from their super fund and their retirement goals, rather than relying on any simplistic league tables that may be published by the media or other commentators.

“The heatmap may tell you that other funds have had higher returns over five years, but if you’re close to retirement you might be far more concerned with how your fund is managing the risks of a market downturn to safeguard your retirement savings. The heatmaps don’t reflect that,” she said.

“The heatmap doesn’t tell you how your super has performed over your lifetime, it can’t tell you whether your fund invests in accordance with your ethical and philosophical beliefs, and it doesn’t tell you what additional services they offer to help you manage your savings.

“If you have concerns about whether your super fund is right for you, talk to your fund or speak to a financial adviser.”

Loane noted that while the FSC hoped APRA would continue to refine its MySuper heatmap methodology, the proposal to extend the exercise to choice products was “highly problematic”.

“The broad variety of choice products in the market, the complexity and bespoke nature of platforms and wraps where individuals choose their investment strategies, and the lack of direct comparable data, makes it extremely difficult to translate heatmapping beyond MySuper and we urge APRA to not only be cautious in proceeding with this exercise but to engage deeply with industry,” she said.

The Association of Superannuation Funds of Australia (ASFA) also warned super members not to jump to “erroneous conclusions that may impact the entire category, or damage member outcomes with knee-jerk reactions from anti-retirement groups”.

ASFA chief executive, Dr Martin Fahy, said there was a potential for unintended consequences from APRA’s methodology, particularly its decision to focus on the short-term three and five-year performance of individual products.

“Achieving sound investment performance and broader member outcomes is a long-term journey, it’s not measured in terms of years, it’s measured in terms of decades,” Fahy said.

BNY Mellon director of Insight Investment for Australia and New Zealand, Bruce Murphy, said he wanted to see the heatmaps developed by adding a 10-year comparison timeframe, adding a simple return for risk measure, and include a metric that showed the level of illiquid assets being used by funds.

“Illiquid assets have been used to great effect by industry funds with strong cash flows. These illiquid assets have performed very well and make a lot of sense to hold with a long investment horizon,” he said.

“Industry funds’ illiquid assets have also provided a high level of comparative advantage over retail funds that by virtue of their “untied” investor base have to use highly liquid assets.”

The Australian Institute of Superannuation Trustees (AIST) chief executive, Eva Scheerlinck, noted that given the heatmap was not intended for consumer use, there was a need for a consumer-friendly tool so that members could make informed decisions about what fund was best for them.