POWERED BY MOMENTUM MEDIA
How can super trustees improve their outsourcing?
The Australian Prudential Regulation Authority (APRA) has unveiled its findings from a thematic review of outsourcing arrangements in superannuation.
This was conducted between February 2019 and October 2021 and involved in-depth research across 10 retail superannuation trustees covering administration, financial advice, investment management and insurance.
Its key observations were trustees' assessment of service providers' value-for-money, trustees' measurement and monitoring of service providers' performance; and trustees' oversight of service providers.
The review found there had been stronger board oversight and monitoring of outsourcing arrangements since the Royal Commission.
However, the regulator said there was “more to be done” and had identified areas for improvement in trustee oversight.
Outsourcing could give trustees access to specialist expertise at a lower cost and with less risk than doing it themselves but could introduce different risks which could significantly impact member outcomes, the regulator said.
Assessment of value for money
APRA said trustees were required to undertake a selection process when choosing service providers, usually done via a tender process. However, for related-party service providers, trustees benchmarked costs against an expert’s views of the market as obtaining quotes was often impractical.
This had the advantage of reducing costs but APRA found some trustees had scoped their benchmarking too narrowly or failed to generate any specific recommendations related to improving value for members. Others focused on existing costs rather than the quality of the service provided or challenging the costs to provide value for members.
Performance measurement and monitoring
The quality of service reporting across trustees when it came to defining and measuring service standards was “varied”, the regulator said, but it had improved materially over recent years.
A better practice example would be using system-based tools to monitor the compliance status of financial advisers of a related party who provided advice to members. This included monitoring where advice fees were deducted and fees as a percentage of account balance to ensure there had been no inappropriate account balance erosion.
Oversight of service providers
The majority of trustees surveyed operated a trustee office to oversee and manage outsourcing arrangements including management and escalation, performance reporting and challenging service providers for the benefit of members.
“APRA observed a range of sizes and structures of trustee office functions, and different approaches by trustees to establishing functional independence for the trustee office from the broader conglomerate group within which they operate. The most value is gained when the office can effectively challenge and influence the trustee’s service providers. This relies on the office having an appropriate mandate and the necessary skills and capability.”apra,
AUTHOR
Laura Dew
Laura Dew is editor at Super Review. Prior to joining SR, she spent five years working at Investment Week in the UK covering asset and wealth management.
Recommended for you
Super funds had a “tremendous month” in November, according to new data.
Australia faces a decade of deficits, with the sum of deficits over the next four years expected to overshoot forecasts by $21.8 billion.
APRA has raised an alarm about gaps in how superannuation trustees are managing the risks associated with unlisted assets, after releasing the findings of its latest review.
Compared to how funds were allocated to March this year, industry super funds have slightly decreased their allocation to infrastructure in the six months to September – dropping from 11 per cent to 10.6 per cent, according to the latest APRA data.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
Spire Oaktree Opportunities XI Second Close
61.07 3 y p.a(%)
2
Spire Oaktree Opportunities XI First Close USD
59.21 3 y p.a(%)
3
DomaCom Lot 21 Chellaston Road Munno Para West SA 5115 Australia
31.73 3 y p.a(%)
4
Fidante Credit Suisse Global Private Equity
30.15 3 y p.a(%)
5
DomaCom 4/27 Crombie Avenue Bundall QLD 4217 Australia
26.71 3 y p.a(%)
