RSE audits could test funds

Corporate super funds undergoing the first audits following the introduction of the Australian Prudential Regulation Authority’s (APRA) June 2006 Responsible Superannuation Entity (RSE) licensing regime could experience a wake-up call.

Russell Investment Group director of client service Mark Thompson said that a number of funds are now beginning to think about the auditing process, having made it through the initial licensing stage.

“Funds are beginning to think about the approval process. No one wants to be the first [to be caught out],” he said.

While he suspects that in the short-term those fund trustees who had chosen to continue under the new licensing had been quite diligent, “over time, they don’t want to relax”.

“The reality of the audits is reinforcing that it’s not going to go away,” he said.

Thompson made the point that whereas corporate superannuation funds in the past could afford to think on a more short-term scale, they would now need to think more strategically.

“They need to look beyond the next six months,” he said.

The main decision funds need to make relates to striking an appropriate balance between cost and service. In the new environment, Thompson said funds needed to ensure they were still delivering appropriate service, and did so at a cost that meant they continued to remain competitive.

Another topic he raised was scale, with a number of large funds having emerged after the introduction of choice legislation and APRA RSE licensing.

“They haven’t yet worked out how to extract full efficiencies from size … the benefits to members are yet to emerge.

“I’m not sure we’ve fully seen the effect scale will have on competition,” he said.

According to Thompson, the next 12 to 24 months will be the most telling period, with rationalisation of funds still in relatively early stages.

He thinks that in this time we will see a raft of product changes within corporate superannuation funds, as trustees begin to judge where they need to sit in order to retain member balance.