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APRA reveals concerning underperformance in over half of platform TDPs

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APRA has identified “poor” and “significantly poor” investment performance in over half of member accounts in platform trustee directed products (TDPs).

While most MySuper products and non-platform TDPs outperformed the investment component of the annual performance test administered by the Australian Prudential Regulation Authority (APRA), more than half of all platform TDPs failed to meet the benchmark.

Drawing upon this year’s performance test, in which more than one in 10 TDPs failed, APRA published a new insights paper on Wednesday, delving deeper into the results.

Platform products that failed included 17 investment options offered by MLC Superannuation Fund, four options offered by IOOF Portfolio Service Superannuation Fund, 16 by Oasis Superannuation Master Trust, among others.

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APRA’s performance test contains both an investment returns component, which measures the net investment return of a product relative to a tailored benchmark, as well as an administration fees component, which compares the latest year of administration fees and costs charged to an industry benchmark.

The regulator’s latest report has revealed that only 44 per cent of member accounts in platform TDPs were in investment options where the registrable superannuation entity (RSE) licensee outperformed the return benchmark.

Twenty-nine per cent of member accounts were in products with “significantly poor” investment performance, underperforming by 0.50 percentage points or more, while 27 per cent were in products with “poor” performance, which underperformed by up to 0.50 percentage points.

In contrast, APRA said that the MySuper products typically performed “quite well”, with 80 per cent of member accounts in products that outperformed their benchmark and the remaining 20 per cent in products which underperformed by up to 0.50 percentage points.

A similar result was also observed for non-platform TDPs. In this space, 84 per cent of member accounts were in products which outperformed their benchmark and only 1 per cent were in products that underperformed by more than 0.50 percentage points.

“RSE licensees with products that consistently underperform their benchmarks need to understand the drivers of these poor results, and consider what changes are required to improve performance or whether they should advise their members to move to better performing products,” APRA warned.

In its insights paper, APRA identified a “significant dispersion” in the administration fees paid by members within each of the product segments.

“The large dispersion in administration fees is evidence that there is considerable scope for fee reductions across the industry, particularly for TDPs,” the prudential regulator said.

Platform TDPs were found to generally have the highest administration fees, with a benchmark representative administrative fees and expenses (BRAFE) approximately double that of non-platform TDPs and MySuper products.

Non-platform TDPs had a BRAFE similar to MySuper products, but APRA noted that a number of products had particularly high administration fees.

Some 53,000 member accounts holding $1.1 billion in assets remain in TDPs with administration fees more than 0.50 percentage points higher than the BRAFE.

“Some trustees offering platform TDPs may need to review their administration fees to ensure the additional services provided to members justify their higher fees and are providing value for money for members,” APRA said.

Meanwhile, APRA observed that administration fees were typically lower for larger funds, which it said is indicative of the benefits of scale that exist in the super industry.

“While some small RSEs can operate efficiently, many cannot,” the regulator said.

“RSE licensees of small and inefficient RSEs should consider what actions they can take to best serve the financial interests of their members, including transferring their members to better-performing products or RSEs.”

APRA said that the insights paper, along with numerical results for this year’s performance test released on Wednesday, are intended to replace the heat maps published by the regulator in previous years.

Beginning next year, a “comprehensive transparency package” covering returns, fees, and performance test metrics will be published soon after the annual performance test.

“Today’s publications represent an additional step towards providing the superannuation industry and their members with more detailed analysis of the performance of MySuper and trustee directed products in the performance test,” APRA deputy chair Margaret Cole said.

“We expect trustees to analyse these results carefully, and – where they have products that are consistently underperforming – take firm action to improve outcomes for their members.”

APRA reveals concerning underperformance in over half of platform TDPs

APRA has identified “poor” and “significantly poor” investment performance in over half of member accounts in platform trustee directed products (TDPs).

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Jon Bragg

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.

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