WA Super CIO Chris West, a Conexus Financial Superannuation Awards nominee for CIO of the Year, talks investment committee bias and the need for highly skilled managers.
Investment Magazine: Why are we so focused on fees when performance is what the member wants?
Chris West: Financial services, in particular superannuation, suffers from great asymmetry in both knowledge and information between the consumer evaluating the product and the product provider. The difficulty members have comparing apples to apples drives a focus on what is simpler to measure, meaning fees. Fees are disclosed and comparable, whereas future performance is unknown and incomparable. The media and consumers try to estimate future performance by looking at past performance but there are so many variables making that complex, especially when comparing funds over different time periods.
IM: What are your expectations for 2019, given the release of Hayne’s final report February?
I hope the royal commission’s recommendations will mean that financial services companies will refocus their efforts to rebuild trust and integrity with their customers and employees.
Even better would be if the financial services industry as a whole remembered that our purpose is to build and foster a system designed to serve and protect the interests of members before ourselves or shareholders.
IM: What was your greatest success and most challenging moment of 2018?
CW: In terms of success, I am most proud of establishing our research partnership with Curtin University. This was a creative spark that has meant we can access cross-disciplinary thinking from a leading university whilst also providing industry-relevant and meaningful topics to their students and academics for research purposes.
The release of the Productivity Commission report and the subsequent intense media focus on fund returns was a very challenging period. We found that by equipping employees with the right information, we were better able to understand and reassure members concerned with the constant ‘media noise’ and what it meant for their superannuation.
IM: Market volatility may mean a higher probability of negative returns in the next few years. How will you meet the challenge of explaining this to members?
CW: At WA Super, we have been communicating our expectations of lower forward-looking returns, higher downside risk and more uncertainty for a few years now. In 2016, we lowered our return objectives for our diversified options and we continue to develop and communicate a narrative around our views and the importance of members getting advice to help them manage the discomfort with volatility of performance.
The deeper the engagement and relationship with our members, the easier this conversation has been. We believe firmly in the importance of empowering our members to get the right advice at the right time. Therefore providing advice, be it general, intra-fund or comprehensive, is an integral component of our service offering.
IM: What risk metrics are being reported to asset owners and what would you like to see reported as an owner/investor?
CW: I would like to see an improvement in reporting to asset owners on sustainability. What I mean by sustainability is much broader than environmental considerations. The United Nations Sustainable Development Goals provide a strong starting point to develop consistent reporting through the value chain. Achieving this could ultimately improve the overall understanding of the portfolio by the asset owner and super funds, which could then report on a consistent basis to members.
IM: There has been a growing community concern about incentives, especially among listed companies generally. What, in your view, is best practice at present for companies in which you have investments?
CW: Incentives will drive behaviour to produce a set of results. Often, those results are purely financial and the risks taken to get those results are only known much later. Those results can also be ‘gamed’. Incentives should be based upon a range of factors measuring employee culture and satisfaction, customer satisfaction, management of risk and the impact on society and the environment.
IM: How can bias be removed at the committee level? Is diversification on the committee the answer?
CW: When we discuss bias, whether that be cognitive or otherwise, and discuss diversity or diversification as a potential answer, I think we are framing the question the wrong way. We need to talk more about inclusion rather than diversity. I argue bias resulting from groupthink is a symptom of the lack of inclusion in our industry, so there is an opportunity to improve the management of bias by being more inclusive.
The 2019 Conexus Financial Superannuation Awards are sponsored by event partner AIA Australia. All the winners will be announced at a black-tie event on February 28, 2018 at the Ivy Ballroom, Sydney. Tickets now available, visit conexussuperawards.com.au
