Super funds under the ratings spotlight

News analysis

By Christine St Anne
Mon 07 May 2007

S&P has added superannuation funds to its rating process in a move driven by pressure from financial planners.

Research house Standard & Poor's (S&P) has added superannuation funds to its rating process in a move driven by pressure from financial planners.

"There was a gap in our coverage. Financial planners are looking either to move their clients into industry funds or take them out and move them into retail master trusts," S&P director of fund ratings Mark Hoven said.

This attitude seems at odds with the view by industry funds that financial planners are not interested in recommending their funds, particularly as they say they don't pay commissions.

Hoven believes, however, there will be less distinction in the market in the future.

"Ultimately there will be more of a level playing field. With the messages of low fees and low costs surrounding industry funds, planners will be making more changes between super funds," he said.

Other research firms are now widening their radars to incorporate industry funds in their ratings coverage. 

"We have been considering increasing our coverage in that sector for some time and we are already collecting data from these funds," Morningstar head of research Anthony Serhan said.

Instead of using its internal investment teams to research industry funds, Lonsec has gone into partnership with Rainmaker Research.

"Given that research in this area is comprehensive we decided to provide information to our clients through Rainmaker," Lonsec general manager Grant Kennaway said.

"It's a big area to research and the key data we were looking for was fees and performance."

A big challenge facing research firms is the level of information on industry funds available to them, particularly as some funds do not use daily unit pricing.

Hoven said initially S&P's research would cover only those funds that used unit pricing.

For Morningstar, however, the unit pricing method is not an issue. "Our systems cope with funds that use credit ratings. Our database includes superannuation funds that use both unit pricing and credit rating," Serhan said.  

The need for greater transparency in information has led to industry-wide initiatives.

The move by the Association of Superannuation Funds of Australia (ASFA) to issue a standard information request form for superannuation funds was in part driven by research firms.

"Research houses wanted a whole range of information. While there is so much information out there, we wanted to issue a standardised way of providing the right information to the research houses," ASFA policy adviser Anne Whittaker said.

The form will require superannuation funds to provide information on their investment returns, unit prices, credit rates and their asset allocation. 

"This information will also allow research houses to do further analysis should they wish to," Whittaker said.

"We want to make the form as easy as possible. It will be set out as an Excel spreadsheet for superannuation funds to update their data. This will save time for both funds and research houses."

She said the draft form would be sent out soon to research houses and industry and corporate superannuation funds for comment.

Once feedback is received from these groups, the form will be tabled for discussion at an ASFA committee meeting.

"It's a work in progress," Whittaker said.

More information on industry funds will be welcomed by financial planners, particularly because of growing client interest in that sector.

As principal for Brisbane-based financial planning group Retirewell Financial Planning, Tony Gillett said ratings on industry funds would help in the recommendation process.

"For us to look properly at these funds, we need them to be opened up and rated by the traditional rating houses so that we can compare them against their peers," Gillett said.

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