David Bell, an executive director at The Conexus Institute, highlighted the lack of uniform assessment criteria in the managed accounts arena. He emphasized this in his address to a gathering of research professionals in the picturesque NSW Blue Mountains.
"It's a growing sector," Bell stated, emphasizing the need for consistency. He warned that inconsistent client experiences or unexplained underperformance might attract regulatory probing, leading to increased scrutiny in this evolving sector.
Bell drew parallels with the superannuation industry, where a lack of consistency was also once a challenge. "Superannuation was a sector that said, we actually assess performance against CPI plus benchmarks, we all do performance assessment," noted Bell. "However, regulators pointed out the dispersed practices, resulting in a unified test, reflecting a possible scenario for managed accounts as well."
Despite Bell's advocacy for standardization, the opinion was not unanimous. Angela Ashton, director of Evergreen Consultants, argued that assessments were in place but not uniformly tested. She remarked, "They're fairly consistent – to be honest, I would say that some are more strict, like some platforms are stricter than others around what they perceive to be underperformance."
Bell encouraged preemptive standardization as a protective measure. "Being ahead of the curve and having industry standards is a very good defensive mechanism, suggesting we’re a self-regulating sector," he remarked.
The backdrop for this conversation was the Your Future Your Super (YFYS) performance test, which stemmed from a government initiative aimed at improving superannuation fund accountability through legislation. "Once you have something that’s implemented with a very strong consumer-led message behind it, you can never retract it," Bell noted on its irreversible impact.
While the intention was to safeguard consumers from perpetual underperformance, Bell acknowledged the test's limitations, pointing out its backward-looking nature and disregard for asset allocation strategies and risk management. This has had significant repercussions for funds failing the test, as evidenced by the merging or closure of 14 MySuper funds.
"The reality is that a first fail is semi-terminal," Bell noted, indicating media pressures compounded the issue, driving funds towards mergers or restructuring.
Kirby Rappell, executive director at SuperRatings, observed changes in investment strategies due to the test, citing AMP's significant cutback as an example. "Their menu shrank by about 70 percent to avoid failing the test," Rappell mentioned.
