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Editorial (Mar-2005): What role ratings houses?
One of the biggest challenges facing superannuation fund members under the forthcoming choice of fund regime will be making an appropriately educated comparison between the benefits of their existing fund and those that might be offered by other funds.
In Super Review this month we have covered in-depth the manner in which the industry is gearing up to communicate with members with respect to choice and there seems little doubt that ordinary workers will be receiving plenty of contradictory messages.
On the one hand, funds will be doing everything they can to persuade members to stay put, while on the other hand, those members will be receiving messages from a range of sources suggesting that their best interests would be served by opting for change.
In the middle will be the Australian Taxation Office (ATO) and the regulators — the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).
For its part, the ATO will be playing the role of honest broker of the new system — the conduit via which everyone will receive the basic information they need to understand the new regulatory regime. For their part, ASIC and APRA will be the umpires, riding shotgun with respect to how various organisations seek to operate within that regime.
But while the Federal Government has managed to cover most of the eventualities likely to emerge from the new choice arrangements, there are also loose ends. And one of those is the role and standing of research houses and ratings agencies.
What we already know about the new choice regime is that the extent to which financial planners will be able to recommend that people change super funds will be constrained by the terms of the Financial Services Reform Act.
What we know is that the terms of the legislation will dictate that financial planners need to ensure they fully understand their clients’ existing superannuation circumstances, and the implications which will flow from any recommendations to change funds. In other words, they will need to be fully acquainted with all the benefits being enjoyed by a client within their existing superannuation fund and be able to substantiate the benefits which might flow from changing.
And where will they go to obtain such data? In all probability they will go to ratings houses.
But will the same strictures which apply to financial planners be applied to the ratings houses and, if so, which agency will apply those strictures?
In late February, ASIC announced that it was releasing data intended to help consumers make their decisions with respect to choice of fund. That data was comprised of information compiled by four reputable ratings agencies.
It says a great deal about that data, however, that ASIC’s executive director of Consumer Protection, Greg Tanzer, said that the agencies were responsible for the veracity of their data because “we have not independently verified it”.
If ASIC hasn’t bothered to verify the data which forms the basis of material it is providing the public, then consumers are facing some difficult decisions as they approach the single biggest change to occur to Australia’s superannuation regime in the past two decades.
Mike Taylor, Editor
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