The debate over the best way to calculate the value of investors' superannuation assets was put back on top of the agenda at last week's Masterfunds conference in the Hunter Valley.
Frances Magill, chief executive of super fund Statewide, told an audience of platform providers, planners and fund managers that members did not necessarily want or understand unit pricing.
"Unit pricing is complicated and hides a myriad of sins. Hidden fees, error risk, administration charges, tax advice and custodial costs all have to be included in a unit price. The industry might understand unit pricing but not the average person," Magill said.
Unit pricing is otherwise seen as an accurate way to attribute a share value of invested assets to unit holders. The price of each unit is based on the number of units issued and the total value of the fund investments at the time the price is calculated.
First State Super provides daily unit pricing to its members and its chief executive Michael Dwyer told Investor Weekly he believed it was the most effective way to value members' assets. "I think there is no question that unit pricing is the most accurate way to value funds because prices are calculated on a daily basis. It requires strict business rules, but I believe we [at First State Super] have a robust system that works for our members," Dwyer said.
According to Magill, however, it was the way in which the unit price was calculated that caused confusion. She said unit price providers needed to add costs, which were often difficult to calculate and intangible. "When you are looking to provide daily unit prices you can only guess at what the costs are. A lot of it involves putting your finger in the air and seeing which way the wind blows," she said.
She stressed that using a crediting rate was a more simplified process that gave people a clearer understanding of the value of their investments. A crediting rate is calculated by crediting an amount to each person's account based on the overall rate of return on fund investments and the amount invested by each person in the fund. Dwyer argued, however, that because crediting rates were only calculated quarterly or annually difficulties arose when it came to paying members out.
A joint ASIC and Australian Prudential Regulation Authority consultation paper commissioned last year, however, stated that while unit pricing provided a more direct link to movements in asset values than crediting rates, investors should beware.
It highlighted the complex manner in which they were calculated and the potential for error. "Errors in unit pricing systems may be undetected for long periods. There have been cases where preventable small errors in the calculation of fees, tax or transaction costs have accumulated over several years, ultimately affecting many thousands of unit holders," the paper said.
Dwyer is aware of the potential difficulties and admitted neither system was perfect. However, he said the consensus within the industry was that unit pricing provided the accuracy members wanted.
