InFocus: Keeping up with the regulator’s changing expectations

The prudential regulator has revealed many superannuation trustees failed to rigorously assess the benefits of sponsorship activity and super funds need to make sure they keep abreast of changing regulatory expectations.

Through its expenditure thematic review, the Australian Prudential Regulation Authority (APRA) found many trustees failed to rigorously measure and assess anticipated and achieved benefits to beneficiaries of expenditure on marketing campaigns and related activities.

It also found instances of trustees being unable to demonstrate how additional benefits associated with sponsorships, that were provided to directors, executives and staff of the fund, resulted in any improved outcomes for members.

The Australian Institute of Superannuation Trustees (AIST) chief executive, Eva Scheerlinck, told Money Management that she was pleased APRA had laid out what they considered to be best practice and not just pointed out where the gaps were.

Scheerlinck noted those expectations were something the association had been lobbying the regulator to do for some time.

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APRA found there was a lack of evidence of clear metrics to assess the benefits of marketing expenditure, limited evidence of ex-post review to achieve the expenditure had achieved its intended outcomes, and an over reliance on aggregate of high level considerations of marketing expenditure impact without demonstrating specific improved outcomes for members.

“We’re pleased APRA has laid out the level of detail they expect in relation to the benchmarking they will require funds to do and what meets expectations and what doesn’t,” Scheerlinck said.

“It referred to aggregate numbers being insufficient and the ability to link benchmark’s to actual outcomes for members.”

The areas APRA had expectations for RSE licensees to strengthen were:

• Setting the marketing strategy and budget at an aggregate level;
• Processes for measuring outcomes of marketing campaigns and activities;
• Metrics to assess marketing campaign benefits;
• Additional benefits;
• Expenditure under the best financial interests duty.

Scheerlinck noted that having a strong brand was useful for funds particularly in light of stapling under the Your Future, Your Super regime.

“Those funds that have been investing in building their brands over the last few years with that understanding of stapling have been able to see the result of their investments through inflows of new members and new contributions,” she said.

However, Scheerlinck said that, despite the new expectations and best financial interests duty attached to marketing and sponsorship, she did not know whether there was ever really a problem.

“I think what happens is that community expectations change over time. We saw in the Royal Commission into financial services there was some investigation about marketing spend and sponsorship,” she said.

“Kenneth Hayne as the royal commissioner didn't find that there was anything there that needed to be reported or required enforcement action from the regulator. But there was a lot of discussion around that from policymakers on what they thought was really in the best interests of beneficiaries.

“As a result of that, changes to the law have happened to clarify that members best interest really needs to be focused on best financial interests and in that they have spelt out the inclusion of expenditure on marketing, sponsorship, and the like.”

She said super funds needed to keep abreast of these thematic reviews from the regulator and extend their education on how the regulations were changing, how expectations were changing, and what that meant from a practical implementation perspective.

“Trustees now need to at a board level be asking management teams to explain what changes, if any, needed to be made to existing processes and to make sure they comply with the expectations going forward,” Scheerlinck said.