A crowded session on ‘Rating the Raters’ at the ASFA conference last week highlighted the unease felt by super funds – and their association – at the growing importance of the fledgling fund ratings sector of the industry
ASFA had prepared a paper analysing the ratings firms and although the raters were given the opportunity to comment on it before its publication, the paper remained critical of various aspects of their businesses. The paper was not published until after the conference session debated these issues. Ross Clare, ASFA’s principal researcher, provided a summary of his findings at the session, which scored each of four ratings firms on categories including: licensing and disclaimers; remuneration; organisational strength; methodologies; breadth of coverage; communications; and rankings. Both in his paper and his speech, Clare looked to inject some levity. He was going to award a ‘Gilded Cow Rating’ to each, followed by a ‘Rater of the Year Award’ but his self-imposed ‘rules’ meant none was eligible. While he said that there was a positive aspect to their role, there was scope for greater transparency in the ratings systems, especially with regard to their methodologies. He said they should consider disclosing poorly rated funds as well as the better-rated ones and should do more market research on what individuals regarded as important in their super funds. He also raised the potential for conflicts of interest arising by the raters receiving remuneration from funds for supplying research or doing consultancy work. “There’s a strong case for the raters to realise their limitations and improve their processes,” he said. The four panellists – Warren Chant of Chant West Financial, Alex Dunnin of SelectSuper (Rainmaker), Jeff Bresnahan of SuperRatings and Wayne Walker of Rice Walker Actuaries – emphasised that the ratings presented, for the first time, a way for consumers to compare and contrast super funds. Chant said: “The ratings are just a guide, but it is important that they are backed up by good analysis. When we do our research, we are doing it with the members in mind.” He said the ASFA paper was “fundamentally on the right track” but should have taken more time to look at the people, processes and research behind the ratings. “I think (Clare) found that ratings are difficult to do.” Bresnahan said the emergence of ratings firms had been “very positive” for consumers. “Ratings are about a macro position on funds. You can never put out a rating to satisfy everyone’s individual criteria.” Rice Walker does not publish its ratings widely, but is considering doing so, according to Walker. The firm, which uses internal ratings to assist employer client decisions, was therefore not ‘rated’ by Clare. In his speech, Clare marked down Bresnahan for being an ‘Elvis impersonator’, a comment prompted by Bresnahan belonging to a group of financial services people who travelled to the Gold Coast each year for an Elvis ritual. However, in his paper, Clare had also marked down Dunnin for using words such as “cool’, ‘hip’ and ‘groovy’ in interviews about fund marketing to younger customers. “My children tell me such terms are ‘gay’ when used to refer to ‘really sick’ goods and services,” the paper says. “Accordingly, while there is nothing wrong with having been a beatnik in a former life, or dressing up as Elvis in private along with consenting adults, the rules are the rules and a deduction of points has to be made for public outings of such behaviours.” To the bemusement of the audience, Dunnin introduced himself as the “gay talker”, which you would not believe if you saw him “as a bouncer at my five-year-old’s birthday on the weekend”, he said. He then criticised Clare’s impartiality in the research, given that ASFA, which employs him, is there for the benefit of the super funds which are being assessed by the raters. He said ASFA had destroyed its own credibility with its role in its recent advertising campaign. Lorraine Berends, the outgoing ASFA chair (who is to be succeeded by Rosemary Vilgin of Qsuper), spoke for most of those present when she asked from the floor: “I don’t understand what this ‘gay talker’ thing’s about,” but said she didn’t want to know, either, after the session’s chair, Denis Carroll of IXIS Asset Management, offered to have the offending paragraph from Clare’s paper read out. Berends instead questioned the purpose of the SuperRatings Fund of the Year Awards, which had been held the previous evening. “There is an overwhelming concern… or frustration with the ratings houses. I’m not sure how much the members even see the ratings,” she said. “And I can’t understand how the Fund of the Year helps members, especially since SuperRatings has a narrow range of funds.” Bresnahan, who this year increased his fund coverage from 70 to 125, said: “There is now a lot more consumer coverage of superannuation than three years ago. The funds we rate and give awards to have delivered above-average results to many Australians. I stand by our methodology because it works.” Chant had the last word for the raters: “There’s an old saying which refers to living by the code of ‘you eat what you kill’. ASFA doesn’t live by that code. We do. When we do research it has to be good, otherwise we won’t be paid.” He added that Chant West had an AFSL licence and is therefore eligible to provide advice (as are Rice Walker and SuperRatings, but not Rainmaker) – ASFA does not have a licence”.
A managed investment scheme holding 20 per cent or more in unlisted assets is deemed an illiquid scheme and is restricted from providing frequent liquidity, but there is no formal limit on how much super funds can allocate to these asset classes. The Conexus Institute writes this is a special privilege given to APRA-regulated super funds that should not be taken for granted.
David Bell and Geoff WarrenFebruary 6, 2025