Super fund selection: accountants bridge gap between advice and guidance

There’s a clear role for accountants around making the right data available on which employers can make informed, independent decisions on MySuper default fund selection, without breaking the law.

How can accountants remain the first port of call for employers looking to choose a MySuper default fund without crossing the divide into advice land?

At a glance

  • Without an Australian Financial Services (AFS) licence, there’s a limit on the amount of advice an accountant can offer on an employer’s default superannuation fund selection.
  • However, accountants can view this as an opportunity to play a role in making the right data available for informed decision-making.
  • When approached for guidance on super fund selection, the first step for accountants to take in avoiding potential conflicts of interest is to inform employers that the service they can provide is factual information only.

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Accountants’ hands are often tied when it comes to providing employers with financial product advice around choosing a MySuper default fund, especially if they do not hold an Australian Financial Services (AFS) licence. However, Richard Webb, policy adviser financial planning and superannuation at CPA Australia, argues that it’s still possible to steer them in the right direction without providing unlicensed advice.

If previous Australian Taxation Office (ATO) research is anything to go by, what employers typically seek the most guidance for when choosing a default fund is finding the necessary information on which to make meaningful performance comparisons between funds. One of the difficulties comparing funds raised in the ATO’s research was the system’s perceived complexity, an insufficient baseline for accurate comparison, and differing fee structures and investment strategies.

Since employers continue to regard accountants as their go-to trusted business adviser for this type of information, Webb suggests accountants view these requests for guidance as more opportunity than threat. He says there’s a clear role for accountants around making the right data available on which employers can make informed, independent decisions on MySuper default fund selection, without breaking the law.

However, before attempting to do that, Webb suggests accountants seek a better ruling on the demarcation between guidance and advice, especially in light of the Australian Securities and Investment Commission’s (ASIC) more flexible approach to “assisted information” being provided digitally.

“Given that it explains the differences between giving factual information, general advice and personal advice, ASIC’s Regulatory Guide 244 is a good place to start,” Webb says.

Before the selection process

To avoid any conflicts of interest, Webb suggests the first thing accountants should do when employers seek advice on MySuper default fund selection is make it clear they’re not licensed to provide any financial product advice, and that the service being provided is factual information only.

There will be occasions, says Webb, when an employer’s choice of MySuper default fund may, unbeknown to them, be made for them. As a case in point, he says accountants should help employers clarify whether the default superannuation arrangements for employees are limited to a shortlist of MySuper default funds within any industrial awards.

“Given that about 50 per cent of the Australian workforce is covered by an award – if we’re just talking about state and federal awards – helping employers to isolate the funds on their MySuper default fund shortlist is going to be an obvious starting point,” Webb says. “That’s going to be especially relevant for the weekly flow of start-up SMEs that might be hiring employees for the first time, yet are potentially unaware of the awards covered by their sector.”

Let employees decide

Scott Abercrombie, executive manager, consulting at SuperRatings, says the next best step accountants could suggest employers take in their search for the right MySuper default fund is an employee/super fund compatibility test. He says an employer can’t presume to know what the right MySuper default fund would be for employees unless they ask them what they want most from a fund.

“That could simply mean getting employers to ask their staff to rate, on a scale of one to 10, what value they put on things like fund performance, insurance availability, fees, and any ancillary services they’re most likely to utilise,” Abercrombie says. “Different funds may suit different types of members, so it makes sense for employers to better match a MySuper default fund with the things their employees value the most.”

The age and gender of employees are part of the mix in choosing a MySuper default fund, claims Alex Dunnin, director of research at Rainmaker Information. Due to a major improvement in data over the past 10 years, he says comparing funds on age and other demographics is a lot easier.

"Different funds may suit different types of members, so it makes sense for employers to better match a MySuper default fund with the things their employees value the most." Scott Abercrombie, SuperRatings

For example, based on Rainmaker research, older members value investment choices and access to advice, whereas low fees, product simplicity and optional insurance are of greater value to younger members.

Once an employer has some understanding of the type of funds its employees want, the next best thing accountants can do, suggests Dunnin, is make employers aware of publicly available information and where to find it. He says it may also pay for accountants to remind employers that their quest for a MySuper default fund is a lot simpler than it may appear.

He urges accountants to remind employers that while it’s their job to choose a MySuper default fund and pay the right super contributions on time, they have no fiduciary duty to consider their employees’ best interests when doing so.

Packing public information

While some employers hire ratings agencies like Chant West, RateCity, SuperRatings or Rainmaker’s SelectingSuper to prepare a MySuper default fund recommendation for them, it’s typically only those with larger payrolls that willingly pay for this service. Nevertheless, Dunnin reminds accountants that these ratings agencies, plus the regulator APRA (Australian Prudential Regulation Authority), also make a lot of their information on super funds readily accessible in the public domain via the internet.

One approach, adds Dunnin, could be for accountants to save employers a lot of the unnecessary legwork involved in selecting a MySuper default fund by preparing a dossier of publicly available information, and this could be done for a fee.

“For example, advising an employer that most construction employees have their super with Cbus, or that most nurses are with either First State Super or HESTA, is a stated fact, as opposed to financial advice,” Dunnin says.

There’s also no shortage of meaningful conclusions embedded within the research tools that ratings agencies, and others, regularly bring to market. Based on the most recent analysis by Chant West, 33 per cent of the 100-plus MySuper default products fell short of benchmarks for investment returns, while 11 per cent failed the fees test.

By gathering these sorts of factual nuggets within credible research, Dunnin says accountants will be instrumental in equipping employers with the right market knowledge before making their own MySuper default fund choice. He says an example is the potential value of accountants highlighting research recently covered in the media.

He cites recent Industry Super Australia data – which identified the no-frills super funds run by the Commonwealth Bank, Westpac and Maritime Super as among the poorer performers – as just one example.

There’s also value, suggests Dunnin, for accountants to highlight any notable trends within performance table data. For example, Rainmaker research suggests there’s a 70 per cent chance that funds in the top-quartile group three to five years ago will remain in that top quartile going forward, while it’s hard for funds repeatedly in the bottom quartile to get above water.

CPA Australia resource: Superannuation reforms and superannuation returns. Learn more.

Performance measures

When trawling through publicly available information, there’s also much to be gained, Abercrombie says, from studying league tables that rating agencies typically make publicly available on performance over one, three, five and up to 20 years (if applicable). However, in recognition that performance tables are only one piece of the puzzle, some research agencies also try to provide a reliable guide to a fund’s value through an overall fund rating across different criteria.

Given that this criteria will be ascribed different value by individual super fund members, Abercrombie says it’s important for employers building a dossier on certain funds to have as much information as possible.

For example, he suggests accountants wanting to ensure employers only select from funds that shine above their competitors – based on administration and investment fees, investment choices, transaction fees and insurance options, plus other services – may encourage them to only look at those with the highest ratings. As a case in point, SuperRatings rates funds as either platinum, gold or other based on a review process that looks at over 300 individual aspects of a superannuation fund’s offering.

While heatmaps, currently being developed by APRA, could also make it easier to identify underperforming super products across three metrics – performance, fees, and sustainability, Dunnin suspects that, owing to greater complexity, they’ll be of more value to the super industry itself than individual fund members or their employers.

“The regulator’s heatmap is a great initiative, but it’s really designed to send two messages to super funds,” Dunnin says. “Firstly, that after being whipped at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, APRA is back in business and spoiling for fights with funds silly enough to take them on; and secondly, funds without strong records should shape up or ship out.”

Key citeria to share with employers looking for a MySuper default fund

  1. Strong performance over different timeframes
  2. Value for money insurance offering
  3. Focus on features and benefits
  4. Rigorous investment process and risk consideration
  5. Access to advice services
  6. Reasonable administration and investment fees
  7. User-friendly platform
  8. Customer service mentality
  9. Strong governance framework
  10. Administration service standards

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