administration fees - financial services royal commission

APRA.0007.0005.0060

Attachment 3 - Summary of responses MySuper - Review of scale tests performed by Trustees (Oct 2015)

Has the Trustee actively implemented Is the approach based on a broad range of Is their approach to the scale test adequate? Add1t1onal their scale test? If so, how? metrics? If not, shortcomings or concerns with approach comments

RSE Liceosee: Yes No Not able to form an ooinion The same approach AMP Superannuation The administration of the SST MySuper Mainly just assessed on membership size and Would need to do more work with AMP to form a is used by AMP for Limited product is managed within the investment scale. view of this. the 2 generic RSE: administration of the broader SST products, SST, ART AMP Superannuation Savings Trust products. The Trustee will assess the and SDF. Could be MySUper product adequacy of membership scale at both more tailed for each AMP MySuper No.2 the SST level and the MySuper level. product.

RSE Liceosee: Yes Yes Yes Austsafe Pty Ltd Assessment performed based on Metrics considered include return and fees. CEO has advised that the scale assessment RSE: SuperRating's data given a lack of approach is to be reviewed - discussions are to be Austsafe available APRA data at the time. A second metric is incorporated which considers held with APRA prior to finalisation. Superannuation Fund the need to increase fees in the coming year MySUper product based on various occurrences, e.g. decline in Trustee requested to base comparison of fees on MySuper (Balanced)

member numbers, decline in net annual median/average rather than 75th quartile. contribution flow, lower rating levels from ratings body etc.

Full universe of MySuper funds has been utilised as the peer group.

RSE Liceosee: Yes Yes No AvSuper Pty Ltd Attestation based on general research Broad range of assessment criteria, but limited Minimal compliance focused approach. RSE: provided by management that was detail on how these criteria are assessed. Information appears to be used to support BAU AvSuper Fund MySUper product considered by the Board. attestation rather than rigorous assessment of AvSuper Growth Criteria includes: adequacy of scale I outcomes. (MySuper) There was no robust analysis or . consistently strong investment over period

discussion of the outcomes of of 3 to 5 years Very high level policy lacks measurable AvSuper's MySuper product, mainly . ongoing ability to negotiate reasonable assessment criteria. Also, no substantive policy to due to a lack of measurable investment fees support the assessment process or identify a assessment criteria in the scale policy. . ongoing ability to negotiate reasonable tolerance or expectation to support each criteria.

administration fees . ability to continue to provide distinct I The fund itself is growing (members, FUM and personalised service contr butions) and member retention is good. The . ability to continue to provide appropriate membership is engaged with high account insurance arrangements (both sum insured balances, which indicates reasonable levels of and cost of cover). having regard to the satisfaction with the niche product. The demographics of the Fund's membership, weaknesses in the approach to the scale specifically the propensity for members to assessment reflect issues with the Trustee's be occupationally classified as "high risk" policy framework. In general, there is a lack of (and often unable to secure alternative rigour and clarity that creates implementation insurance) issues (concerns raised at the recent prudential . performance benchmarked against other review). super funds with similar features

APRA.0007.0005.0061


RSE Liceosee: Yes Yes No Board of Trustees of the Scale test has been performed. Approach based on two tests: Test one to be amended to attribute each lifecycle State Public Sector option to a category, i.e. stable, balanced, growth Superannuation Scheme . Test one of the assessment refers to etc - with comparison to returns produced by RSE:

returns after consideration of fees and MySuper products with similar options. QSuper State Public Sector Superannuation Scheme taxes. comment that the test is limited given minimal MySUper product data available at this early stage. QSuper Lifetime . Test two refers to an assessment of scale

based on membership and assets and the Peer groupings will need to be commented upon impact of administration and investment within the policy Both tests would benefit from fees relative to the industry. further clarity as to what would be considered

acceptable, i.e. level of returns and level of fees. Re fees comparison is to the Chant West survey. Assessment details the range of representative member fees commenting that QSuper is amongst the lowest. No consideration of median or quartiles for example.

RSE Liceosee: Yes Yes Yes BUSS (Queensland) Pty Assessment performed which took into Admin scale determined using CEM Suggest expansion of peer group - currently Ltd account administration and investment benchmarking. Scale considered appropriate comparing against 10 not for profit industry funds. RSE: Building Unions scale. where operating costs are not more than 20% of

Superannuation Scheme the median and service score is not more than

(Queensland) 20% under the median score of comparative MySUper product funds. BUSSQ MySuper Investment scale determined by consistent top

quartile returns on an after tax and fee basis.

RSE Liceosee: Yes Yes Yes Club Plus QLD Pty Ltd Assessment performed based on Metrics considered include: Confirmed with Trustee during MySuper that the RSE: SuperRatings Data. third quartile is a reference to the tier under the Club Super 1. Balanced net returns over rolling 5 and 10 MySUper product year periods - performance in at least the

top performers. Club MySuper

third quartile; 2. Average dollar cost per member of at least

third quarttile; 3. Total fees for a representative member on

a $50k account balance of at least third quartile.

APRA.0007.0005.0062


RSE Liceosee: Not known Unclear Not able to form an ooinion. Similar observations Colonial First State Onsite Board paper review indicated a Not aware of specific metrics being used, but View of CFSIL is that they already have scale for Commonwealth Investments Limited scale test may have occurred in scale policy indicates investment scale is given that FUM is $60Bn. Essential Super RSE: May/June 2014, but no documents monitored through Investment committee (CES) - not included Colonial First State FirstChoice provided to APRA quarterly review that includes ensuring assets Review of member outcomes and scale is a SAP in final sample.

Superannuation Trust remain scalable and monthly review of assets activity planned for Nov 2015. For CES, Trustee MySUper product Scale Policy received as part of held to monitor and report on flows and cash considers that being Colonial First State MySuper application stated an annual position as well as impact from worldwide part of a suite of FirstChoice determination would be undertaken. events and external ratings. Colonial products Superannuation Trust Also, external auditor provides provides scale. As

confirmation to the trustee that the Administration fees reviewed to ensure fees are such, a test is to operations and scale are adequate. appropriate and competitive (using research ensure competitive

houses). pricing occurs.

RSE Liceosee: Not known Haven't seen actual approach. Not able to form an opinion. Commonwealth Bank No discussion with APRA or scale Scale policy provided to APRA indicates that Officers Superannuation documents provided since MySuper fund performance would be considered against Corporation Pty Limited authorisation. the fund's KPls which fall under the following RSE: categories: Commonwealth Bank Group Super

Scale Policy provided as part of MySUper product MySuper application states that scale . Proactively engage with members; Accumulate Plus test would be an annual process . Long-term returns that exceed market

considering - market competitiveness, benchmarks; access to scale, fees, investment . Suite of competitive products; and management and scale, and threats . services at below-industry average costs . and strategies.

The annual determination of scale would occur over Aug/Sep with scale attestation to Board by end of October.

RSE Liceosee: Yes Yes No Electricity Supply Management performed assessment Assessment is multi-faceted taking into account Following onsite review, Trustee requested to Industry which was submitted to the December FUM, membership numbers, investment further revise the test performed as it does not Superannuation (QLD) 2014 Board meeting for approval. performance, fees, insurance offering, member incorporate any ranking of the results and does Ltd servicing and governance. not address how peer funds have been RSE: Energy Super determined. MySUper product FUM, Membership numbers and investment MySuper performance have been determined utilising It is also prepared on a whole offund basis rather

APRAdata. than giving consideration to the MySuper members v the total fund.

Fee comparison based on review of PDS Policy does not comment on actions to be taken information. The balance has been assessed where the scale test is failed. utilising SuperRatings Fundamentals.

APRA.0007.0005.0063


RSE Liceosee: Yes No No Elphinstone Group Completed annual scale assessment. Metrics limited to performance and fees for Policy had included that scale would also be Superannuation Pty Ltd representative member. assessed based on average member account RSE: balance. Following our review, the trustee Elphinstone Group Superannuation Fund undertook a further scale assessment based on MySUper product average member balance. Balanced RSE Liceosee: No Yes Yes Similar approach Equity Trustees Limited The MySuper products have only been The trustee policy will measure the MySuper net taken for other RSE: in force since January 2014. returns over the long term, meaning over 7 to 10 MySuper products EmPlus Superannuation Fund years to cover a typical investment I economic related to the RSE MySUper product The Trustee considers the accurate cycle. Licensee. EMPLUS MYSUPER comparison data would best be the

performance and fee data collected and published by APRA.

On this basis, it will not be until after 30 June 2015 APRA reporting data that the trustee expects to receive comparable data in practice not until late in 2015 or early 2016, which means the adequacy of scale test will occur sometime afterwards. In the meantime, the trustee is developing detailed processes to suooort imolementation of the Policv.

RSE Liceosee: No No No Further discussion is LCA NOMINEES PTY. Policy approved but test not performed. Very basic approach, further work required. Lack of detail about how the test will be carried ongoing during LTD. out in practice. quarterly liaison RSE: meetings with APRA. Lutheran Super MySUper product

Balanced Option MySuper Comoliant RSE Liceosee: Yes Yes No Limitations of current Maritime Super Pty Management paper provided 1. Performance assessed against net return Policy is loosely worded with somewhat subjective policy discussed with Limited information to support the Board make objective (Cash Option plus 2%pa) over assessment criteria. For example, no practical the Board. The RSE: its annual attestation in Oct 2014. rolling 5 year period detail on how metrics are implemented and the policy and process Maritime Super MySUper product 2. Investment performance benchmarked tolerances for when outcomes should drive further will be reviewed Moderate Investment No changes to the scale policy, against investment options in other funds action. before the next scale Option assessment criteria or process following with similar target allocations (growth I Despite poor performance, above average fees assessment.

attestation. defensive assets) and growth substantially below expectations, the 3. Fee comparison with other funds. policy has not driven any real action to address 4. Feedback from members. concerns and the original policy has not been 5. Feedback from industry advisers and robustly reviewed.

consultants.

APRA.0007.0005.0064


RSE Liceosee: Yes Yes Yes Media Super Limited Adequacy of Scale Policy states that If average net return is greater than or equal to The approach is considered compliant as it fulfils RSE:

the Trustee conducts the scale test the overall MySuper average net return over 10 the process requirements of SIS. However, its Media Super MySUper product annually, with results reported to the years, then Trustee determines adequacy of adequacy is questionable. Balanced investment Board at the December board meeting. scale achieved. option (accumulation) For example, the process:

No scale assessment has been If not, Trustee evaluates whether members supplied, so cannot verify if this policy is disadvantaged due to insufficient administrative . is focused on average net return, rather than implemented diligently. However, there and/or investment scale. a broad range of factors, i.e. if the Fund's is mention in the Policy that the Trustee MySuper product achieves an average net had determined that adequacy of scale Administrative scale is assessed using the return greater than or equal to the average had been satisfied for the 2013-14 following factors: net return of other MySuper products, the financial year. Trustee would automatically assume that . Number of members invested in the adequacy of scale has been achieved; and

MySuper options and whole fund. . MySuper and whole fund FUM. . appears over1y complicated (i.e. multiple . Services and benefits provided to step/decision tree-like model). members (Fund charges all members on the same basis). . Admin costs and fees charged to MySuper rep members Vs other MySuper products. . Other factors considered to be relevant.

If costs to are greater than the costs for other MySuper members, then the Trustee will undertake analysis to determine if this is due to insufficient scale.

Assessment for investment scale uses the following factors:

. MySuper and whole fund FUM . . Investment opportunities available based on the size of the assets of the MySuper option and the Fund as a whole. . Net return on assets of the MySuper option and whole fund. . APRA's published returns and fees for all MySuper products. . Advice from Fund's asset consultants and CIO.

If the returns are less than the average returns for other MySuper members, then the Trustee will undertake analysis to determine if this is due to insufficient scale.

APRA.0007.0005.0065


RSE Liceosee: Yes Yes No Mercy Super Pty Ltd Scale test has been performed. Assessment considers investment returns, Further work needed. Recent investment RSE: administration scale (fees) and insurance scale. performance has not been strong and the fund is Mercy Super MySUper product expensive compared to competitors, however the MySuper results of the scale test did not highlight any

concerns. The reference to Insurance offerings within the scale test appears to be confused without any clear outcomes. We have asked the Trustee to better define its approach.

RSE Liceosee: Yes Yes Yes Same approach OnePath Custodians Pty The policy itself was reviewed, and an The key metrics are whether the number of used for large Limited assessment made of the adequacy of members and investment assets provide employer product. RSE: OnePath Masterfund scale in a report to the trustee board on economies of scale that benefits members. MySUper product 12109/14. This assessment concluded ANZ Smart Choice that "actual investment and Super membership scale that has been

achieved is sufficiently large so as to not disadvantaae members".

RSE Liceosee: Yes Yes Yes Retai l Employees The policy is fairly high level, though in Approach uses a range of metrics to assess the It fulfils the requirements of SIS and the Trustee is Superannuation Pty. practice the approach may be MySuper product focused on ensuring that currently undertaking further work to determine Limited considered better industry practice as it members are getting "value for money". how it can assess whether it is fulfilling the RSE: Retai l Employees is focused on ensuring that members of obligation to promote MySuper members' financial

Superannuation Trust this large fund are getting ·value for Metrics not fully articulated in the Scale Policy, interests. MySUper product money'. but are apparent in the test itself. They include: REST Super . number of members invested in the

The Trustee undertakes the Scale MySuper product compared whole fund; Assessment on an annual basis and . MySuper FUM compared to total FUM; recently resolved to change the timing . MySuper option performance against its to align it with the release of the Fund's investment objective and target risk year end results. measures, and against peers; . long term net returns of the MySuper

option compared to the long term net returns of other MySuper products; . REST's ability to continue to invest according to its defined investment philosophy without undue constraints; . the REST MySuper services, administration costs and the number of members amongst which these costs are shared as a measure of value; . other factors as determined appropriate -for the most recent Scale Test, these comprised contribution revenue, and industrv recoanition and awards.

APRA.0007.0005.0066


RSE Liceosee: Yes Yes Yes Further discussion is Statewide Scale test has been performed. Test comprises components performed by ongoing during Superannuation Pty Ltd Investment team and other components quarter1y liaison RSE: performed by Finance team. Several metrics meetings with APRA. Statewide Superannuation Trust included. MySUper product

StatewideSuper MvSuper RSE Liceosee: Not known Unclear Not able to form an opinion Suncorp Portfolio Copy of scale policy was provided as Metrics in scale policy provided as part of Haven't seen how Trustee has implemented the Services Limited part of MySuper application MySuper application set out the following policy RSE: Scale is to be assessed annually. minimum information to be provided to Board Suncorp Master Trust MySUper product Committee: Suncorp Lifestage . MySuper/Fund members; Funds . value of MySuper/Fund assets; . extent to which MySuper assets are pooled

with other fund assests; . information on other MySuper products; and . long term return and admin cost comparison.

RSE Liceosee: Yes Yes No Sunsuper Pty. Ltd. Scale test has been performed. Assessment considers FUM and number of Further work needed. Assessment should also RSE: members within the fund and the MySuper consider returns generated and policy should Sun super Superannuation Fund product comment re level of fees and returns that would MySUper product An assessment has also been performed re be considered appropriate and action to be taken Sunsuper for Life admin and invest fees compared to others. when scale not be considered appropriate. Policy

should also identify peer funds and how these have been determined.

RSE Liceosee: Yes Yes Yes Includes The Trust Company Whilst the Trustee has applied its scale Assessment criteria based on: The Adequacy of Scale Test itself is considered observations about (Superannuation) test, Supervision does not believe that 1. Value of Assets appropriate. However, the Trustee's application of other MySuper Limited the Trustee is actively giving genuine a. Investments adequately diversified the scale test is considered insufficient in light of products related to RSE: consideration to scale in general and b. Asset liquidity does not pose known issues with two of its MySuper Funds. the RSE Licensee as AMG Super MySUper product the policy is executed in a manner impediments to investment similar approaches AMG MySuper which suits the Trustee's own c. Asset Consultant / Investment Manager Whilst the Trustee in each of its assessments followed.

objectives and to meet its legislative determines that investment transaction notes that there are limitations regarding obtaining compliance obligations. costs are comparable to other MySuper longer term data (due to MySuper only being a

products recent product), it has considered these (along The Trustee has concluded that its with planned changes to the Funds) to be three MySuper products have sufficient 2. Total Costs sufficient justification for the conclusion that scale scale and no further action is needed. a. Total cost (in dollars) based on average is adequate for the time being. However, Supervision's view is that two account balance per member. of these funds (AMG & LESF) have In light of the nature of the ongoing issues clear issues regarding scale and the 3. Investment Returns (net of fees, costs, Supervision has identified via the financial data of Trustee should further consider how it taxes) compared to other similar MvSuper the Funds Supervision is of the view that rather

APRA.0007.0005.0067

Has the Trustee actively implemented Is the approach based on a broad range of Is their approach to the scale test adequate? Add1t1onal their scale test? If so, how? metrics? If not, shortcomings or concerns with approach comments will tackle these issues to address products over rolling 1, 3, 5 and 10 year than seeking to justify the conclusion of the scale scale. period test, the Trustee should be considering what

action needs to flow from the scale test in order to 4. Insured Benefits address those areas where issues have been

identified. There has been no recognition at this stage that action needs to be taken to address scale for AMG and LESF. This indicates that the Trustee is unlikely to be giving genuine consideration to whether members are currently being (or are likely to become) disadvantaged by remaining in the AMG or LESF MySuper products This is considered to be more of an issue regarding the Trustee's attitude and mindset, as opposed to issues with the content of the Adeauacv of Scale Policv itself.

RSE Liceosee: Yes Yes No T.l.S. Pty. Ltd. Scale policy updated in Feb 2015. Based on eight different criteria in four different The assessment criteria derived an overall score RSE: categories (value of assets, total costs, that automatically indicates scale adequacy. The Transport Industry Superannuation Fund Policy includes a weighted rating table investment returns and insured benefits). MySUper product that derives an overall score to The assessment was signed by the Trustee at the TIS MySuper establish whether the criteria was same time (Feb 2015) as Rice Warner delivered

achieved, not achieved or inconclusive. an independent review report on the fund's The Board undertake this assessment viability within which Rice Warner concluded that each year. the MySuper product would not satisfy a scale

adeauacv test RSE Liceosee: Yes No No WA Local Government The Trustee produced a report based The trustee measures 10 year net investment The Trustee has made an annual determination of Superannuation Plan on the fund's "Determination of Scale" returns against other funds to determine scale in accordance with s29VN and metrics used Pty Ltd policy The policy requires the funds whether it is in the bottom quartile. generally accord to the guidance available at the RSE: comparison of net investment returns time of licencing. WA Local Government Superannuation Plan for MySuper options against other If the fund is not in the bottom quartile against MySUper product MySuper products as published in this metric, then it is immediately ruled that the However, the 'hurdle' for the assessment, based My WA Super APRAdata. scale requirement has been met on whether or not the funds net investment

returns are in the bottom quarti le as compared to At the time this Trustee performed the If the fund is in the bottom quartile, further other funds, is not considered sufficient test APRA had not yet published the assessment is undertaken. data so it ruled that the test could not be performed property. This further assessment determines whether the

net investment returns are low because there The report includes a brief statement are insufficient members or assets in the around year to date earnings of 11 % MySuper product or fund; or whether it is the are positive against the objective of investment strategy, fees and charges or other CPl+3% and a 'reduction of costs'. A relevant issues that have affected performance. further report will be prepared following the release of the APRA data.

APRA.0007.0005.0068


RSE Liceosee: Yes Yes Not fullv Water Corporation Trustee produced a report which Metrics considered return and fees and against There is appropriate consideration of fees and Superannuation Pty compared admin fees to other MySuper 'similar fund median returns, but this is not set short term performance against peers, but no Limited products (using APRA data) and was out clearly. justification included as to the selection of 6 funds RSE: Water Corporation satisfied it was in the 3rd (not bottom) to compare returns against.

Superannuation Plan quartile. No consideration of membership size or total MySUper product asset size. Also, the returns, fees and other data of these Growth (MySuper) The investment return was measured funds were not included in the report, so the

against the median return of similar Board would be unable to adequately compare funds (60-80% growth allocation) over the performance against others. the medium term.

Insufficient consideration of fund profile. It then compared its 7 year net return against CPI +4% (its return objective). As the results fell short, it compared against 6 'similar' MySuper products and results were said to be 'comparable' but no data was included.

The determination then recommended that the Board approve that members are not disadvantaged, despite there being no 'conclusion' or summary to outline whv this was the case.

administration fees - financial services royal commission

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