In the wake of the Global Financial Crisis, super experts have again pointed out the industry still has no agreed standard on how investment options should be labelled.
In a report produced in late 2008, SuperRatings found most super funds still deliver on their objectives even with market turmoil but, just 24% of fund options make it easy for consumers to understand.
Consumers have a right to be able to clearly understand and measure the performance of their investment option and said measurement should be consistent across funds.
As an initial step SuperRatings is of the opinion that all investment objectives contain the following measurable figures:
1. The objective should be referenced against a “CPI Plus” objective. In other words, all objectives should state that they are trying to return CPI plus X% (e.g. the objective is to return 3.5% above the CPI).
2. The objective should be stated over an annualised time frame. In other words the objective should be expressed as being achieved over a X year period (e.g. the objective is measurable over a 5 year period).
3. The objective should clearly advise the risk of having a negative return. This should be in the form of the likelihood of having a negative return in this investment option is “a” years in “b” years (e.g. 1 year in 10).
Less than 1 in 4 investment objectives were in SuperRatings’ view able to be easily measured against clearly defined and measurable benchmarks. Out of 413 investment options, 312 had to be eliminated from the study due to ill-defined objectives, leaving just 101 options for the study.
SuperRatings Chief Operating Officer, Nathan MacPhee stated “Funds are not rushing out and changing the labels of their investment options and they need regulatory guidance to do that.”