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Managed Funds and Superannuation

Submission to Consultation Paper 199 - Debentures: Reform to strengthen regulation

Finsia made a submission to the Australian Securities and Investment Commission in March 2013 to consultation paper 199 that outlined a number of proposals to strengthen the regulation of the debenture sector, including introducing minimum capital and liquidity requirements.

Sequencing risk — A key challenge to creating sustainable retirement income

If market risk were not challenging enough for superannuation funds, this important and unique research finds that the sequence in which returns are realised by investors plays a critical role in determining the sustainability of retirement incomes.

Using historical and bootstrap simulation from Australian data, this study finds that sequencing risk has a pervasive influence on the sustainability of retirement income and this risk is particularly acute around the period in which retirement savings are at their peak.

Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Bill 2012

In its October 2012 submission to the Parliamentary Joint Committee on Corporations and Financial Services, Finsia welcomes the product dashboard and disclosure measures outlined in the Further MySuper Bill 2012. Standardised reporting of MySuper fund information in the product dashboard will assist fund members to make informed decisions about the most appropriate investment vehicle to secure sustainable retirement income.

Impact of sequencing risk on retirement incomes

A significant component of the Cooper super review involved discussion about adequate superannuation provision for members’ retirement. Much of the focus has been on cutting the costs associated with superannuation and increasing the contribution margin to address retirement adequacy. By and large the review did not address the need for fund managers, in assisting members, to deliver better structures for post-retirement outcomes. 

Much of the review focused on the accumulation phase and the issues related to the cost of superannuation and the development of default superannuation models. The review was cautious in addressing areas that directed trustees towards particular products. This has left a potential gap in products that can contribute to offsetting risk for superannuation fund outcomes. 

There is an inherent risk that should a member’s retirement date fall in a general economic downturn, his or her retirement income will be adversely affected. This is known as sequencing risk. Finsia has commissioned Professor Michael Drew and Dr Anup K Basu to prepare a research paper which will estimate the impact of sequencing risk on retirement wealth outcomes in Australia. The research will define, model and estimate the impact of the sequence of returns for superannuants using over a century of Australian return data. Implications of this study for trustees, investment managers, financial advisers, regulators and fund members will be discussed. The paper will be released in 2012.

Finsia to assist funds in implementing ESG principles

Environmental, social and governance (ESG) principles inform the investment decisions of a growing number of superannuation funds. However, many funds still struggle to develop policies to implement ESG principles. In response, in early 2012, Finsia released a set of practical guidelines to assist in developing clear and effective policies to implement ESG principles.

Finsia’s guidelines target superannuation funds, which have been at the forefront of ESG implementation. These guidelines highlight the importance of commitment from the c-suite for successful implementation.

Is ‘cash’ cash? – Improving retail income funds

Finsia's 2009 discussion paper on retail income funds considers how the design and marketing of income fund products could be improved in the wake of the GFC, so as to benefit retail investors and enhance the future growth of the income fund sector.

The paper addresses three questions commonly asked by retail investors during the GFC:

  1. Why can’t I get my money back?
  2. Why didn’t ‘cash’ (for example) mean cash?
  3. Why have my returns fluctuated so much?

Finsia suggests these questions raise areas of concern for regulators and investment professionals about access to capital and the concept of liquidity; product names; and potential disincentives to investment. The paper poses three broad discussion questions related to these areas of concern and suggests possible responses to them by way of a number of proposals. 

Leadership in adversity: Climate change, ESG and the finance industry

In the first stage of Finsia’s research for this policy initiative, a study of senior finance industry representatives engaged in environmental, social and governance (ESG) activities was conducted in 2008 by Finsia in association with Griffith University’s Sustainable Business Research Initiative. The preliminary findings were released on 19 May 2008, in the report Is the financial services industry ready for climate change? This report was used to inform Finsia’s workshop at the National Business Leaders Forum on Sustainable Development at Parliament House in Canberra.

In the second stage of this policy initiative, 10 focus groups were held based on the five industry sub sectors:

(1) Financial Planners; (2) Brokers & Sell-Side Analysts; (3) Fund Managers, Buy-Side Analysts & Asset Owners; (4) Investment Bankers & Venture Capitalists; and (5) Bankers & Lenders. The findings of these focus groups formed the basis of a report, The financial services industry beyond Kyoto: Capacity building for climate change. This report informed the joint Finsia-Institute of Actuaries of Australia Low carbon economy: risks and opportunities for the financial services industry event in 2008.

In conjunction with Griffith University Business School, Finsia launched the third and final stage results of the research project at the In the long grass – leadership in adversity conference held in Sydney on 7 May 2009. The associated report includes a projection of the potential impact of emissions pricing, reporting systems and opportunities for emission reduction on investment valuation, risk assessment and advisory services, and the identification of the research and delivery streams that will need to commence. The focus is on the capacity of financial services industry sub-groups to proactively incorporate these issues into their investment and advisory practices.

Investing for the long haul

Finsia’s ‘sustaining our future – investing for the long haul’ campaign examined the economics of sustainability risk reporting. Economic modelling released in August 2007, which was commissioned by Finsia and conducted by Econtech concluded that, ‘Overall, the voluntary adoption of sustainability risk reporting by more Australian businesses appears to be a worthwhile investment for them, as well as having wider economic benefits, and so should be encouraged by Australian governments.’

In addition, an exposition paper titled Corporate Social Responsibility and Sustainability: the new business imperatives? An international comparison was released in August 2007. It was prepared for Finsia by Professor Thomas Clarke and Ms Alice Klettner of the University of Technology, Sydney - Centre for Corporate Governance and concluded that, ‘Corporate social responsibility is receiving considerable increased attention world-wide and is associated with significant economic, environmental and social benefits’.

Consumer research  on sustainable and responsible investing commissioned by Finsia and conducted by ANOP during this campaign found that in the ‘superannuation choice’ environment that now exists, more information about socially responsible investing is needed.