What will happen if your administrator loses your records or your service provider breaches a contract? And what steps will you take if there is a negative report about your fund in the local newspaper or if the fund becomes the victim of a fraud?
Does your fund have a process in place to deal with these adverse situations, and has it taken any steps to prevent such potential situations from happening in the future?
Indeed, these are some of the questions super fund trustees have to start asking themselves as they begin preparing a risk management plan (RMP) ahead of the looming Australian Prudential Regulation Authority (APRA) licensing regime.
And while some will groan about their ever increasing compliance load, the experts believe compliance is a good thing and that it is all about good business practice.
Entente founder and head, Vanessa Hall, says: “Compliance is all about strengthening business processes. It’s about doing business well. Trustees really shouldn’t be in business without it. It’s not rocket science.
“It always astounds me when people say they don’t know why they should have this stuff. It’s to protect them and their employees. It’s to have things running smoothly.”
Marsh & McLennan’s Costa Zakis agrees with Hall. He says putting together an RMP teaches trustees to consider the adverse conditions that could affect a fund, and forces them to put in processes which will help them react to these situations.
Mercer Human Resource Consulting’s Russell Mason adds: “If you understand how you manage your business, the chances are that you will better manage your business once you’ve looked at your risk management.
“Super funds are businesses and manage significant assets for thousands of people. Why shouldn’t they adopt the same risk management practices as other businesses?”
He believes that many super funds may first have seen compliance as a burden, but now they are seeing it as a benefit.
“I see the risk management side of things becoming increasingly important. I believe this will be one area of compliance that trustees quickly realise is not compliance for compliance sake but good business sense,” he says.
Zarkis agrees, noting that many trustees are beginning to see “the wow side” of risk management. “Trustees are now saying that there are better ways to run this business that protects its assets, members and themselves,” he says. “It shouldn’t be a matter of APRA coming in and saying why do you not have this or that in place. It’s a matter of turning around to APRA and saying, look what I’ve got.”
Nonetheless, Zarkis concedes that there’s a lot that needs to be done. “Initially it’s a burden to organise, but once you have things in place, its just a maintenance issue,” he says. “Funds may already be doing all the right things, but by having an RMP in place, they are able to demonstrate this properly. When they go through their RMP, they are also able to highlight where they can do things better.”
He adds that risk management is not a one-off event and that changes in a business should be triggers to look at risks and ongoing risk management. “But you can’t take the risk of one super fund and think it’s the same for another. We’ve discovered there are huge differences in areas like risk appetite, history and the way the fund is managed. These vary and you can’t take one fund and adopt it to a standard,” says Zarkis.
Hall does not expect the APRA licensing regime to be fundamentally that different to the FSRA licensing regime. “The issues will be similar, but we are not yet picking up much activity on the APRA licence… It’s a bit of the Australian ‘she’ll be right, mate’ mentality. People wait until the end, and then do it.”
