The platform trustee problems on APRA’s radar

A “large dependency” on research houses, poor performance indicators, and a failure to close underperforming options are among platform trustee problems flagged by APRA.

On 7 October, APRA issued a letter to platform trustees which urged them to improve their practices around onboarding, ongoing monitoring, and remedial actions. This followed the information that First Guardian and Shield managed investment schemes were made available by some platform trustees which exposed members to significant loss.

Covering three areas, APRA’s letter calls for improvements in activities such as onboarding practices, monitoring of investment options, trustee investment governance frameworks and policies, remedial actions and member transfer, among others.

“While a platform trustee may not manage each investment option offered, they must exercise diligence ensuring the platform’s investment menu as a whole is appropriate, each investment option is true to label, delivers value to members and is underpinned by robust decision-making and good governance,” APRA said.

Within the documentation, the prudential regulator shared examples of good and bad practices it had observed among the surveyed platforms.

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Poor practices:

• Large dependency on external research and ratings agencies to approve new investment options, with limited internal assessment of the information collected.
• Compliance-driven processes that operated in isolation, without clear consideration of how the onboarded option promotes the best financial interests of members. 
• Internal policy requirements not being applied rigorously and consistently when evaluating whether an investment option was suitable for inclusion on the platform.
• Thresholds for identifying under or outperformance were generally ineffective as they were set at levels unlikely to be activated.
• Discretionary approaches to remedial action, typically retaining underperforming options and closing them to new investments and contributions. Without clear and time-bound plans, existing members remain in these investment options without resolution for extended periods.

Good practices:

• Assessments use a wide range of external and internal research and ratings to identify suitable investment options, with approval recommendations and decisions carefully reviewed and challenged. Examples of research conducted include performance and fee analysis relative to pre-determined benchmarks, and evaluating the quality of the valuation, stress testing and liquidity analysis.
• Due diligence assessments with a dedicated section evaluating whether the onboarding of an option is consistent with members’ best financial interests. 
• Frameworks containing a comprehensive suite of measures to assess emerging and long-term performance and risk issues.
• A range of monitoring controls, including oversight of investment holding limits, adviser trends, multifaceted triggers, and event-based monitoring.
• Well-structured framework(s) that enable timely and consistent remedial action and member transfer decisions. These include clear decision-making roles and the required analysis, such as tax impacts and identification of successor options, products or RSE.

Trustees will be closely monitored to ensure they are enacting the relevant steps and can expect regulatory action if their efforts to comply are inadequate, APRA said.

“APRA will actively and closely monitor steps taken by platform trustees. Where planned enhancements or implementation are assessed inadequate, platform trustees can expect robust regulatory action and the full use of APRA’s regulatory tools.”