Super performance tests increase the value of advice

The “blunt” nature of the superannuation performance test means the role of financial advisers in educating their clients is becoming more and more important, according to Vision Super.

Speaking at a FINSIA webinar, Emma Robertson, Vision Super head of investment operations, said her superfund had been conflicted by their continual repetition of the phrase “past performance is no guarantee of future performance” and a “blunt” performance test based entirely on past performance.

“So, we do need an education and advice piece around understanding how members can properly assess the capabilities of the funds and compare it,” said Robertson.

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She said the superannuation industry needed education, robust and transparent data and independent advice.

But one of the challenges facing super at them moment, Robertson said, was that it was difficult to source “truly independent advice”.

Kristian Fok, CBUS Super chief investment officer, said the performance test had a ‘perverse’ effect in that it promoted short term decision making even though products were assessed over an eight-year time horizon.

“So, you can do the maths, and if you happen to have a really strong period that rolls off, you know what you have to achieve, for instance, if you're on the edge,” he said.

“I think if you've had consistent… performance year by year, and you've got a margin, then you're probably going to think about things a bit differently.

“So, you're going to have these sort of haves and have nots in terms of the ability to execute.”

Georgie Dudley, JANA head of business strategy and innovation, added that the need to hold the industry to account, highlighted by the performance test, should be balanced with the effect it had on members.

“One of the things that we do find a bit challenging with the framework is that it puts a lot of pressure back on a member to then try and look at ‘well is the forward-looking potential performance of a fund consistent with that historical analysis?’,” Dudley said.

“Ultimately past performance is no guide to future performance, we can all agree to that, but I think at the same time, we can’t completely throw that out the window in terms of saying we don’t care about performance because as an industry I think we have to hold ourselves to a higher bar.”

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I received new client(s) due this fundamentally flawed system. Their last 12 months was 25%+ and their underperformance something like 75bps.

The whole system is complete rubbish (this is outside of the confusion and doubt and potential mistrust this can develop in super in the clients mind), the measurement system is completely flawed. Most professionals knew this prior to the legislation being passed. As usual the muppets in charge did not consult with those that work in the system, just Hayne, academics and stone throwers from outside that have no idea what's going on in the real. world.

All this talk about performance, all this discussion about asset allocation, investment products, different options and on and on it goes. The elephant in the room; not blaming financial planners for never identifying this, is that the whole financial system is potentially unstable. Everyone knows that over the last 10 or 20 years a combination of money printing, vast amounts of liquidity being injected into the banking system, deliberate policies of governments to trigger asset price inflation to stimulate demand and further borrowings and excessive household debt has the potential to degrade the value of savings and the financial system. And all this is before you factor in an ageing population, environmental degradation and the potential future need for substantial financial resources to be allocated to fixing something that we've always treated as being free- clean rivers, lakes, oceans etc. There are plenty of examples around the world where in different countries people savings have been wiped out without it being caused by war some catastrophic event. I am one of those that believes the superannuation system is ignoring the reality that the value of long-term superannuation is potentially very suspect. The latest substantial economic threat to savings could be governments around the world resorting to inflation to monetize debt. This will destroy huge swathes of people superannuation balances in terms of its purchasing power in retirement. I challenge anyone to meaningfully argue that using inflation to monetize the excessive debt that now exist around the world is something governments would never do. Financial planners never talk about stuff, they have to but it is not irrelevant.

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