Fund comparisons scale in pipeline

Financial planners and superannuation fund members may soon be able to compare funds based on a simple scale determined by their relative exposure to risk.

The proposed move to the scale emerged during a round table conducted by Money Management’s sister publication, Super Review, at which Association of Superannuation Funds of Australia chief executive Pauline Vamos suggested the industry was nearing agreement on the issue.

Vamos also suggested the scale was capable of gaining the endorsement of the major regulators — the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority. “I think for the first time the industry is starting to agree,” she said.

Vamos said agreement had begun to build around simple descriptions such as ‘really risky’, ‘high risk’, ‘low risk’ and ‘little risk’.

“Just very little descriptions that are intuitive,” she said.

Vamos said the next step in the process would be assessing the assets in portfolios that give rise to the descriptions.

She said she believed the scale would evolve as funds within the industry got measured and tested, and then it would be a case of getting the regulators to test whether the funds were true to label.

“Because I think that is the issue,” Vamos said. “We are not true to label. And we were found wanting on that during the global financial crisis. What we said was ‘cash’ was not ‘cash’ and it would never have been ‘cash’.”

Vamos said the industry could begin moving to the scale irrespective of the ongoing efforts of the Cooper review into superannuation.

“It is what we’ve got to do, and we have the means to do it,” she said.

Other panellists at the round table endorsed the move to such a scale, with Mercer principal Russell Mason suggesting that in circumstances where it was difficult to standardise fund descriptors such as ‘conservative’ and ‘aggressive’, a move to an underlying ranking would be beneficial.

The managing director of insurer IUS Life, Phil Collins, said he believed underlying rankings would also be useful in terms of helping consumers better understand insurance products and ensure they were not inappropriately insured.