Many in the super industry are hopeful that an APRA investigation into eligible rollover funds (ERFs) will uncover what they argue are questionable practices by some of the vehicles, however APRA said much-criticised ERF fees would not be part of its review.
The review, which began in mid-2007, has no specific deadline and is not likely to release its findings to the public, according to APRA spokesman Stuart Snell. The review is long overdue, according to SuperRatings managing director Jeff Bresnehan. SuperRatings has been vocal in its criticism of ERF practices, describing the estimated management fees – $100 million – made by ERFs in 2006/07 as “absolutely excessive”; in light of the low crediting rates offered by many of them. “;And that [$100 million] is a very conservative estimate,” Bresnahan said. An example of an ERF is AMP’s Eligible Rollover Fund which will charge a gross management fee of 2.17 per cent for 2007/08, but has capped its crediting rate at 2 per cent for accounts with less than $1000. This rate was introduced last June. For the last five years such accounts received 0 per cent. AMP ERF staggers its crediting rate as account balances increase, with the highest performance being a 4.2 per cent return for balances over $50,000. Another ERF, AUSfund, charged members a 1.04 per cent management fee in 2006/07, a $10 administration fee and returned 15 per cent after fees for all members. Snell said the review is an internal one and APRA is prevented by its enabling legislation from releasing details about specific entities. It may provide some “generic outcomes” once the review has concluded and been considered. He said the review was not triggered by any specific concern or event, but APRA would look at a number of practices. “;APRA is aware of a number of emerging issues with the operation of ERFs, including: conflicts of interest (e.g. investing in products offered by referring institutions); investment strategies that may not be suited to members; the process a trustee uses to select an ERF; and monitoring of lost members’ accounts and approaches to account consolidation.”; However Snell said the “appropriateness or otherwise of fees has not been specifically targeted” as a point of concern. “Fees charged to consumers is not within the APRA mandate”, he said.
There is one investment area where Insignia’s $180 billion super arm has not lost money for the past 17 years, which is what it calls the insurance-related investments. The alternatives strategy is gaining popularity among asset owners due to its diversification benefit, but Insignia’s super and asset management investment chief Dan Farmer warns it is a space where investors can suffer if they “stumble in without doing the homework”.
Darcy SongJanuary 23, 2025
