Can regulators recognise ‘value for money’?
Regulators need to understand that people often choose to join superannuation funds for the services they offer, not just because they are cheap or offer “value for money”, according to major superannuation body, the Association of Superannuation Funds of Australia (ASFA).
ASFA has used a submission to the Australian Prudential Regulation Authority’s (APRA’s) inquiry into superannuation operational governance, to argue that the regulator should not seek to pursue the same “apples for apples” net super return MySuper comparison framework to choice superannuation products.
“A different set of considerations apply,” it said. “For example, what comparison would be appropriate for a member in a fund which offers individual market options who has chosen a high ‘emerging market’ exposure?”
“It would not be appropriate to judge performance against different types of asset allocation and even other emerging market products might not be directly comparable as the weightings might vary substantially,” the submission said, arguing that while gross or net benchmarks would be an alternative even this was problematic.
“Choice products have a greater variety of product features and member benefits attached to them than MySuper products and it is difficult to compare them directly, especially with regard to net returns,” the ASFA submission said.
“There are also a variety of elements from which choice members derive value. In the first instance, there is a legitimate question around how APRA can possibly determine that a choice product is not delivering ‘value for money’, when an individual member has determined otherwise as demonstrated by their investment choice.”
“APRA may for example determine that a product is relatively expensive, compared with similar products on the market. However, those choosing to enter into those arrangements may be opting to pay a premium for benefits that are important to them,” the submission said. “Brand affiliation, trust, service, security and modern technology are examples of such benefits. The ‘value’ attributable to these factors will vary from person to person as it depends on individual preferences.”
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