Single sector super funds should be performance tested

Single sector focused superannuation funds should not be excluded in the super performance test as the draft explanatory reasons to exclude them are not justified, according to CPA Australia and Chartered Accountants Australia and New Zealand (ANZ). 

In its submission to the Your Future, Your Super regulations and associated measures consultation, CPA and Chartered Accountants ANZ pointed to the draft explanatory statement that said single sector options were excluded because they were “typically used in combination by a beneficiary to design their own bespoke diversified investment strategy”. 

“The amendments exclude single sector investment options by requiring a trustee-directed product to contain at least two asset classes, where the strategic asset allocation for each of those classes must exceed 10%”. 

However, the submission said the intention of the performance test was to assess products the trustee had control of the design and implementation of the investment strategy.  

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“Consequently, the majority of single-sector investment options have been designed by trustees and implemented in accordance with an investment strategy which is subject to no other similar performance mechanism,” it said. 

“The corollary of this exclusion is that there would be a mechanism to measure the performance of superannuation fund investment products which would be easily available for use to measure the performance of single-sector investment options, but not actually able to do so.” 

It also said the reasoning to exclude single sector investments as trustees wanted to own bespoke diversified investment strategy was not strong. 

“This is also not strong reasoning, with multisector investment options also used routinely for assisting in creating bespoke investment portfolios by some investors; with other investors often using one single sector investment option to the exclusion of all others,” the submission said.  

The submission also pointed to the explanatory statement that said: “[p]roducts where the only control the trustee has over the product is to either offer or not offer the product to members are excluded from the definition of a trustee-directed product”. 

“This is not a realistic summation of the product-offering process by trustees,” the submission said. 

“Trustees are required to undertake extensive decision-making prior to making such products available, including the design and implementation of an investment strategy, adherence to the design and distribution obligations (including target market determinations) and ongoing compliance with members' best interests requirements. 

“The decision on whether to offer such a product is therefore never going to be the only control that trustees have over such products. 

“We believe that it would be wasteful and inefficient to build this infrastructure, leaving Australians who use single-sector options unprotected from underperformance. We strongly urge that single-sector products be subject to performance testing.”