Super funds called to question by advisers

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‘Stronger Super’ reforms have introduced a mandatory requirement that will provide greater certainty for advisers when it comes to questioning prudentially supervised funds.

Funds must put a reserve of at least 0.25% aside to protect members from operational risk. The operational risk financial requirement (ORFR) could not have come sooner in this “compulsory, largely un-capitalised, long-term growth industry”, according to Bruce Auty, principal of The Risk Board.

Auty says that so far, it has been hard for advisers to disprove any information they receive in regards to super fund performance. He says that with these new regulations, robust advisers can question the super fund about their returns and how much has been set aside for operational risk. The fund should be able to tell them how much that impacts on individual members’ returns, says Auty.

“Having financial advisers aware of this and asking the right questions of super funds will only enhance the visibility of these issues and enhance disclosure. To my mind, while it’s an impost by a regulator, it actually represents good practise and has the capacity to avoid big shocks.

“In the past if something’s gone wrong, it just got washed out,” says Auty. “Members were never made aware of it and financial advisers never knew what questions to ask. This way there’s greater certainty about what sort of questions they can ask and there’s a number attached to it.”

Auty says that, while it will result in reduced returns to members, members will avoid the volatility of any kind of larger loss.

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