More hurdles for advisers to jump

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Yet another directive coming into effect in July 2013 is SPS 530, Investment Governance. And while you might think this standard will only have an impact on RSE licensees, Tria Investment Partners say planners can expect to be indirectly affected as well.

The standard sets out a rigorous and relatively prescriptive set of requirements for the governance of investments, investment strategies, and investment options, according to Tria managing partner Andrew Baker. He says that as a result of the stricter guidelines, super wraps will try to consolidate the number of options they offer, and “will probably be a bit stricter in terms of how they add new options going forward”.

At the moment, wraps put new investment options on funds, essentially at the request of financial planners, he says. This new standard means that planners dealing with super wraps will see tighter guidelines on the funds, shares and other investments on the menu.

“Super wraps will be increasingly reluctant to add lots of new investment options without being clearly convinced of the demand for them, just because of the extra costs and activity that they’re going to have to incur now.

“If [planners] ask for some marginal investment to be added to the approved list, they’re probably going to find higher hurdles they have to jump over,” says Baker.

The resources of all types of funds will be stretched:

  • Not-for-profit funds, which although they benefit from a smaller number of strategies and options available to members, typically have very small teams to manage this through.
  • Retail funds, which have larger product teams to manage SPS 530, may have hundreds of investment options which need to be covered.

The five main components that will make SPS 530 challenging to deal with in a short time frame are:

  • Board responsibilities – Boards must approve overall policies and their appropriateness
  • Trustee investment limits for MySuper products – RSEs need to document how the investment strategy is diversified and in compliance with SIS and permissible fee rules
  • Investment governance and objectives – A governance framework needs to be developed, and objectives need to be set for the RSE as a whole, and for each investment option.
  • Investment strategy and liquidity – Again, for the RSE as a whole, and for each investment option, there need to be policies relating to investments, asset allocation, and rebalancing. There also needs to be a liquidity plan and scenario stress testing.
  • Due diligence and monitoring – RSEs must demonstrate effective due diligence in selecting investments for members, and have effective on-going monitoring and assessment processes which permit timely interventions when objectives are not being met.  E.g. you cannot simply set up investment options and then basically forget about them. 

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