Super funds to disclose property risk level
Superannuation fund managers will have to disclose to members the risk profile of property and all other assets held in their portfolios following the release of new industry guidelines by the Association of Superannuation Funds of Australia and the Financial Services Council.
The guidelines are a precursor to Australian Prudential Regulation Authority regulations coming in June 2012 that will require superannuation funds to identify and disclose, on a standardised basis, the risk of negative returns over a 20-year period for each of their investment options.
The release of the guide comes as more self-managed superfunds inquire about converting to APRA-regulated schemes and property continues to grow as a component of DIY funds.
There are currently about 3,500 small APRA funds (schemes with fewer than five members) in Australia, with an uptake in enquiries from SMSFs considering converting to prudential status noted recently by Melbourne brokerage E.L & C Baillieu.
According a survey by Multiport, about 13% of the 1,400 SMSFs it administers are borrowing to invest, with 56% of the loans used to invest in property.
Under the new industry guidelines, superannuation funds will be required to provide a “standard risk measure” ranging across seven risk bands, from “very low” to “very high”, for each of the investment options they offer.
This will enable consumers to better understand the investment risk in the option they have chosen and make it easier to compare funds.
Financial Services Council chief executive John Brogden says the standard risk measure will help consumers to make better informed, confident decisions about their superannuation.
“Having a clear understanding of risk is just as important as being aware of fees or returns. With a wide variety of investment options available across a large number of funds, it is essential that investment risk is fully disclosed and comparable,” Brogden says.
“The standard risk measure will ensure consumers are more aware of the investment risk in the option they have chosen and will enable them to compare ‘apples with apples’ when looking at different investment options.”
ASFA chief executive Pauline Vamos says the release of the guidance paper is a key part of the increased transparency in “true to label” reporting that consumers will see from the current superannuation reform process.
The methodology for determining an investment option’s rating according to the standard risk measure will be supported by a structured review process and both APRA and ASIC will review its operation as part of their normal activities.
According to ASIC chairman Greg Medcraft, the standard risk measure should assist investors to compare funds and to make better informed decisions.
The government’s new shorter product disclosure statement regime, which commences in June 2011, is expected to include the risk measure.
For more on self-managed super funds and property, see Property Observer's e-book 16 questions self-managed super fund trustees should ask before investing in property.