Investment governance expectations on superannuation trustees
have risen markedly since the introduction of the StongerSuper
reforms. All trustees are required to respond but super platforms
and other funds with extensive menus of member-directed investment
options face the greatest challenge. APRA confirmed this month that
such funds will need to carefully curate their investment
Many funds are introducing member-directed investment options in
an attempt to offer members the investment flexibility which is
achievable through an SMSF but without the associated
administrative and regulatory complexity of setting up and running
an SMSF. However, trustees are being reminded that giving members a
menu of investments to choose from does not absolve the trustee
from responsibility for what gets included on the menu.
The recent amendments to the SIS Act and APRA's Prudential
Standard SPS 530 require trustees to develop investment objectives
and an investment strategy for each investment option, including
options consisting of only a single security or managed fund. The
option's objectives and strategy needs to address risk, return,
diversity, liquidity and a range of other considerations, and
trustees are also expected to actively monitor the option's
performance against its objectives and strategy.
APRA's draft guidance (contained in Prudential Practice
Guide SPG530) confirms investment governance expectations apply to
each product on a member-directed investment menu. A platform
providing access to ASX200 stocks and external managed funds will
need investment objectives and strategies for each option.
Draft SPG530 also requires trustees to consider imposing
portfolio constraints on how much of individual members'
account balances are permitted to be placed in a particular option
to address the need for members to have diversity in
Numerous industry submissions made in response to the release of
SPG530 questioned the value of requiring investment objectives and
strategies to be set for single security and managed fund options.
However, APRA this month confirmed its intention to retain these
requirements when issuing the final SPG530. It is hoped the
guidance will also clarify what trustees need to do if an
investment option (e.g. a particular security) is to be removed
from the menu specifically, whether members need to be transitioned
The potential downside for trustees that come up short on any of
the investment governance requirements is not just the possible
APRA related sanctions, it is also the potential exposure to
members who are disappointed with the investment performance of
individual investment options offered by their superannuation fund.
The safe harbor for trustees in respect of claims by members
arising out of investment decisions is only available where
trustees meet all the requirements of the investment governance
Non-super platforms (whether in the form of IDPSs or IDPS-like
schemes) are facing similar, though less extensive, reforms over
the next 12 months. Operators will need to disclose their process
for including products on the investment menu (including what
factors were considered and how often the menu is reviewed). Unlike
in the super context, no particular processes are prescribed.
However, clients who suffer loss from underperforming products may
well still look to the operator and allege its due diligence
processes around menu selection and management were inadequate or
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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