Almost 100 trustee-directed products have failed the annual performance test in their first assessment since it was extended from MySuper funds.
There were 96 trustee TDPs failing to meet the test benchmarks, which included 76 of 305 platform products and 20 of 500 non-platform products, APRA announced on Thursday.
AMP and Insignia owned 75 per cent of the failed TDPs – AMP’s NM Superannuation, as well as Insignia’s OnePath and Oasis Fund Management (both acquired from ANZ), and Nulis Nominees (acquired from NAB/MLC).
Australian Retirement Trust will also close the QSuper Socially Responsible option off the back of the results, which returned 4.5 per cent a year during the timeframe of the test.
“In accordance with our merger transition program we are moving towards a harmonised investment menu for all members from next year,” an ART spokesperson said in a statement, adding the option will be closed from 1 July 2024 and members will instead choose other options.
“In the meantime, we have already made a range of changes to this option’s investment strategy and asset allocation which we believe will improve its performance.”
APRA found the median administration fees and costs for platform TDPs were the highest at 0.54 per cent of assets, compared to 0.27 per cent for non-platform TDPs and 0.26 per cent for MySuper products.
‘One size fits all’
Both AMP and Insignia, whose MySuper options passed the test, publicly stated support for the YFYS test but criticised the application to choice products.
AMP platforms director Edwina Maloney says the extension of the test this year to “a small subset” of wrap investment options will cause confusion and potential harm to consumers invested in them.
“In its current form, the test applies a ‘one size fits all’ methodology to these wrap investment options which, in some cases, are designed to offer different risk characteristics and performance outcomes than contemplated by the test,” Maloney says.
“AMP continues to urge the Government to reconsider the test methodology for wraps, improve transparency and to address the immediate issue of providing tax relief for consumers having to exit products which haven’t met their performance benchmark.”
According to figures supplied by Insignia, the test impacted around 5000 of their members representing accounts worth a collective $350 million – less than 1 per cent of total members and assets in its super funds.
“It’s disappointing to see this many members impacted, albeit small, but we’re very keen to ensure advisers have the right information and the clients have the right information to make the right decision,” Oliver says.
He says part of Insignia’s problem was that whilst the underlying investment strategies may be fewer in number they multiply when you’ve collected several platforms under one entity.
“It’s the variation of administration fees means there are different outcomes for different cohorts of clients in the same investment option,” Oliver says.
“The number of failures is greater than the number of underlying investment options and that’s because the same investment option can appear in multiple platforms each of which will have a different administration fee.”
In Insignia’s case, it is still migrating products of legacy systems that will operate under a different fee structure in future.
“In some cases, we’ll introduce a better fee from the administration fee perspective for those clients transitioning to the new platform,” Oliver says.
The YFYS was first introduced in 2021 and only covered MySuper products with choice products to be included later.
AMG Super was the only MySuper product to fail the test, which it has in all three years the test has been run. Acclaim Management Group announced the closure of the AMG MySuper product to existing members.
It is working with Equity Trustees, the trustee of the fund, to ensure AMG MySuper members “receive the best outcome” following the termination of the option.
WTW investments director Jonathan Grigg says platform products often need to be more liquid than their industry fund peers which means missing out of the returns from unlisted property and infrastructure.
“The platform products are more associated with wealth providers [and] financial planners, so people are more engaged, they’re moving their money around a bit more which means they need to potentially have a higher level of liquidity and don’t take on as much illiquidity,” Grigg tells Investment Magazine.
“If they’re looking for diversifiers they’re probably more focused on liquid areas and they’re harder to benchmark and in the performance test are benchmarked against a mixture of equities and bonds.
“When you have a period like we’ve had over the last 10 years where equities in particular have done really well, then that benchmark mismatch there’s a much higher tracking area and underperformance over the last 10 years.”
Financial Advice Association head of policy Phil Anderson says the methodology around fees works based on the size of the investment being $50,000 in the test, which doesn’t take into consideration that most platforms offer a lower variable fee for larger balances.
“What that means is something that’s uncompetitive at $50,000 might be quite competitive at $200,000, but it’s been assessed on a balance of $50,000,” Anderson says.
“Typical asset balances for wrap products is more than $50,000, that’s one of the contributing factors.”