The move from Viridian and CFS to provide personal advice in a scaled manner highlights a growing willingness within the industry to fix its own problems in lieu of waiting for the government.
Private markets are worth around $14 trillion globally, ASIC believes. It’s not sure, and that uncertainty hints at the wider problem – private markets, and their effect on public ones, is still largely a mystery.
Federal Government pauses YFYS rollout
News that the rollout of the Your Future Your Super (YFYS) test beyond My Super products would be paused has been met with positive and negative commentary from the investment industry.
It is widely accepted that the legislation wasn’t perfect, however, given the fact that most My Super products benefit from a continual flow of contributions as “default” products, there would be few pundits that believe some level of additional oversight is warranted.
That said, there were clearly issues with the implementation, which were highlighted by Minister for Financial Services, Stephen Jones, when announcing a pause on the rollout of the test to so-called ‘Choice’ products.
Among those issues was the fact that any super fund willing to do something different and stray away from the fairly vanilla benchmark indices on which they were being judged, risked underperforming and eventually losing members.
As regular readers will know, YFYS essentially punishes those super funds which accept greater tracking error in the pursuit of returns. Two of the more common sources of higher tracking error are holding unlisted investments, given the benchmark is listed, and applying ethical or ESG screens to investment portfolios. The latter is particularly relevant in Australian equities given the benchmark carries a significant exposure to commodity companies.
Jones was quick to highlight his confidence in the mechanism and the longevity of the test, stating “funds must always be held accountable for their performance,” while noting that “in doing so, accountability mechanisms must not simultaneously create perverse or unintended outcomes for members.”
Expanding, he pointed out the true risk of the testing being growing concerns in the industry that the laws “have the potential to create such outcomes by discouraging certain investment decisions or certain infrastructure investments.”
Treasury has been tasked with undertaking the review, with Financial Services Council (FSC) executive director, Spiro Premetis, approving the pause, saying “The broader review of YFYS will provide an opportunity to examine any unintended consequences of these important reforms, such as ensuring consumers have the option of selecting superannuation funds that align with broader goals such as ESG investing.”
The challenge with Choice products, of course, is that they have many different objectives, not just the CPI+ objectives of My Super Balanced options, which may have some relevance to the broader financial advice industry. While there have been no suggestions from policymakers that the test will be expanded to the SMSF sector, this is clearly a longer-term possibility as the oversight of all aspects of superannuation continues to grow.
The YFYS changes have been a free kick for financial advisers since their inception, primarily because it forced a large swathe of My Super products to gravitate towards passive, or index-focused strategies. This allowed advisers to differentiate in varying ways, either by applying more actively managed approaches, or including higher allocations to alternative investments.
