The research company did a detailed analysis of over 500 diversified options based on the Financial Services Council (FSC) and the Association of Superannuation Funds of Australia (ASFA) Standard Risk Measures (SRMs).
In 2012 FSC and ASFA introduced the measures, which aimed to show members and funds the probability of negative returns over a twenty-year timeframe. These measures, while not compulsory, have been adopted by a majority of Australian super funds.
“We feel it is really important that the theory of the decision, but also the real world outcomes, be considered,” Kirby Rappell, a research manager at SuperRatings told InvestorDaily.
One of their key findings was that funds have made a “good first step”, but there was an inconsistency in risk ranges.
“We are finding quite a variation in the risk of different diversified options. So, for example, the balanced options are ranging from low to medium up to high risk, so it could be between three to six years out of 20 of negative returns,” Mr Rappell pointed out.
The problem is the funds have “quite a lot of discretion” with the inputs and that prevents the results from being “truly comparable”.
The need for an accurate and suitable risk assessment for members is increasingly important as Australian markets slow down.
“Obviously, you dialled on more risk and obviously you were rewarded with higher returns,” Mr Rappel said referring to the previous boom years, but added, “we have found now the focus is much more on risk-adjusted returns and the need to take on higher risks at an appropriate time in members’ lives”.
The research body advocates funds to increase their “transparency” and have a “consistent level of conservatism” with the assumptions input into the models.
“What we would like to see is a refinement of the models to make sure they are truly comparable – which is what we need to make like-for-like comparison in the industry,” Mr Rappel said.
