“Avalanche”, “game changer”, “all-consuming”, “unprecedented” are just some of the phrases Aware Super CEO Deanne Stewart has been employing of late to describe the challenges facing the industry in terms of recent regulatory changes.
The boss of one of the country’s largest super funds, who was recently awarded the 2021 Fund Executive Association Limited (FEAL) Fund Executive of the Year (see more below) said just to give an indication of the scale of the issue there were close to 80 different regulatory elements that her organisation needed to “get right” in a 12 to 18 month period adding Aware Super has allocated huge resources, dollars, time and energy to doing so.
Having said that, most of the regulatory changes have “incredibly good intent” she was at pains to point out.
“Whether that be improving member outcomes, improving transparency, ensuring funds perform better, lower fees… so don’t get me wrong, we’re supportive of it. But it’s like an avalanche, it’s all come at the same time,” she said.
So if you ask her what’s keeping her awake at night it’s: “landing that safely, as well as really thinking through the unintended consequences… that I really worry about as it relates to the regulatory agenda.”
Breaking down the problem
According to Stewart, the Your Future Your Super legislation and the basic three elements under it will be game changers for the industry moving forward.
She said if you look at stapling, that is certainly a “really significant change in the industry” and will be an accelerant to moving from “defaults to choice”.
And she added the performance test was already having a significant impact.
“That combined with the ATO comparison website that in itself is reshaping the industry. And certainly, what does that mean when you’re an underperforming fund that’s being called out in a very public way that you’re having to write to members,” she said.
And then there’s the best financial interest duty.
Stewart argues that up until this point Aware Super has looked to do everything in its members’ best interests anyway, but she is cognisant of the extra degree of scrutiny and transparency adding even more pressure to make sure that everything the organisation is doing needs a business case and clear metrics and justification.
But wait, there’s more…
Something else Stewart said we had yet to see but may also have a significant impact on the industry is breach reporting.
She maintained it’s something that’s “sort of gone under the radar.”
“But [with] breach reporting, it almost means the moment that you have an incident and you have the contemplation of it being a breach then you need to report it,” she said.
“So [for] many organizations that I’ve spoken to, 80 to 90 per cent of what they’ve called previously ‘incidents’, and [were] not really sure, and then as they under underwent a review of the ‘incident’, it’s not really a ‘breach’. Most of those [incidents] under the way that breach reporting is now classified will actually have to be reported as breaches, and then you need to go and investigate. So breach reporting will change quite dramatically.”
Again, Stewart argued this was not necessarily a bad thing, it may have a positive impact on organisations really taking incidents and breaches seriously because they all have to be reported in a fast way.
“But I think in the meantime, it’s going to be a tsunami of breaches heading ASIC’s way. Why? What are they going to do with all of that data,” she said. “And in the meantime, organizations are going to have to gear up additional staff, additional resourcing, additional funding. So that’s [another] one that I think will have really big implications.”
Portfolio holdings disclosure
Another of Stewart’s major concerns over which she hopes “reason will see the light of day and a compromise will be struck” is around the issue of portfolio holdings disclosure.
Under the banner of transparency, the disclosure holdings rules would mean essentially every investment an organisation looks to make needs to disclose not just the actual assets, but their actual value as well.
“On the face of it that makes sense,” she said. “Members, and the general public should be able to see exactly what you’re investing in as a Superfund and we have no issue with that. [But] where we have an issue is where you’ve got unlisted assets and derivative positions and you have to disclose the value.”
The point being that when it comes times to sell the asset the fund is at a market disadvantage.
“And it only applies to Australian-based super funds,” she said. “It doesn’t apply to foreign investors. So it creates a completely unlevel playing field.”
“I’m all for sensible regulation. I’m all for transparency,” she said.
“But I think you need to find where is the right degree of that transparency. And by the way, I’ve never had one member ask for the detail… of every single asset and exactly what it’s priced at today, we’ve never had that member request. So if it was actually genuinely serving a member request that was coming in on a regular basis, I would think differently. So one needs to question why.”
Deanne Stewart was named the 2021 Fund Executive Association Limited (FEAL) Fund Executive of the Year. She was recognised for her leadership during the pandemic, her commitment to supporting and building the industry’s reputation and her contribution to Aware Super’s corporate strategy, digital innovation and growth. The recipient receives an education grant of $25,000 sponsored by T. Rowe Price. The event marked the 20th anniversary of the award.