Superannuation fund trustees are being warned they need to closely manage their relationships with fund managers, particularly with respect to so-called soft dollar commissions.
The Australian Prudential Regulation Authority (APRA) says it is urging superannuation fund trustees to ensure their fund manager relations are “energetically managed in the member’s best interest, even if this makes for more spirited dealings with the fund managers in question”.
APRA executive general manager policy research and consulting, Charles Littrell, says that while the regulator has no position on the efficiency or propriety of soft dollar arrangements, there is a need for trustees to address the relevant issues.
He says that some trustees have moved to directed commission schemes in which soft dollar expenses are managed more proactively, often with the assistance of consultants who specialise in the area.
“APRA would expect trustees of super funds with substantial equity turnover to manage soft dollar arrangements, though the specific management approach is a matter for trustee discretion,” Littrell says.
“The active versus passive management decision, and the performance pay and retention decision, can allow trustees to soften the commitment to the member interest by following industry practice,” he says. “It is apparently industry practice. For example, the funds are by default managed on an active basis. Trustees need to weigh up whether active or passive management, or some combination, maximises the long-term member interest.”
Littrell says the trustees also need to be aware of APRA’s expectations with respect to the outsourcing of responsibilities even though there is no intention on the regulator’s part to approve or pre-vet the arrangements.
As well, he says that APRA wants outsourcing contract provisions to provide the regulator having access to the service providers.
“We don’t seek to regulate these service providers, but from time to time, we may need to visit them or seek information via other means. As an example, we currently visit some of the information technology related firms that service the banking, building society and credit union industry,” Littrell says.
“I expect that we will extend this work to major fund managers once the new superannuation standard is in place. APRA cannot accept its supervisory oversight capability being truncated or rendered ineffective via outsourcing,” he says.
