Regulator APRA has warned the superannuation industry it will take action against funds spending millions of dollars on marketing and advertising if they are unable to identify the benefits for members.
In a review of 12 funds across the industry, APRA analysed $87 million of marketing spending and found some funds were unable to explain how members would benefit from the spending.
APRA board member Margaret Cole warned funds that their spending would be under the microscope from July 1 this year, and must comply with the Best Financial Interests Duty that was introduced as part of the federal government’s superannuation reforms.
For funds with questionable spending beyond that date, Ms Cole said APRA had “challenged trustees to demonstrate how [the spending] complies with the new law”.
She said the regulator would take action against funds if their answers were unsatisfactory.
“Once their responses have been assessed, APRA will consider what, if any action, is necessary to protect the interests of superannuation members,” Ms Cole said.
Funds not named
Although APRA did not identify which funds had been examined, it paid close attention to sports-related spending.
One example given was a fund that had entered into a multi-year arrangement to sponsor a sporting team.
The fund provided no evidence to show that the board had signed off on a business case at the start of the deal.
APRA said other funds had approved the renewal of marketing campaigns and sponsorship arrangements without evidence demonstrating the effectiveness of those campaigns to deliver improved outcomes for members.
The regulator said there was often no ongoing oversight of the effectiveness of campaigns while they were running.
One fund entered into three different sponsorship deals without producing any evidence that they provided benefit to members.
Staff benefits questioned
APRA is also cracking down on the sponsorship gravy train.
The regulator singled out benefits provided to directors, executives and staff of funds as a result of major deals and said they needed to result in improved outcomes for members.
“Australians expect those they entrust with growing and protecting their retirement savings to deliver value from every business plan enacted, dollar spent and investment made,” Ms Cole said.
“We expect all trustees to review their operations in light of these findings with a view to identifying any sub-standard practices and improving processes and procedures.”
Funds that failed to fully explain the rationale for their sporting spending offered up data on such things as crowd attendance, club membership, and estimated size of TV audiences during games.
But the regulator found they could not demonstrate a link between these data sets and the benefits to members.
Super Consumers Australia director Xavier O’Halloran said super funds’ marketing spending had long been a concern.
“It’s something we have been talking about for a long time,” Mr O’Halloran said.
“If it can be demonstrated that spending attracts customers and ultimately drives down costs, then that’s fine.
“But funds need to be demonstrating those benefits to people’s retirement savings.”
APRA finally bares its teeth
APRA’s latest move comes as the regulator starts measuring fund performance and pressuring laggards to merge or up their game.
“In lots of ways, it means APRA is finally doing what regulators are meant to do,” said Alex Dunnin, executive director of research group Rainmaker.
“They’re meant to be out there scrutinising funds and all of a sudden they’re getting very aggressive.
“That’s a good thing. But it has taken a while to get to this point.”
Mr Dunnin said he was nonetheless surprised that some funds had failed to justify their spending – and warned against assuming that APRA was referring to the funds with the biggest and most visible marketing campaigns, like Hostplus, Cbus and AustralianSuper.
“I’m pretty surprised that the funds wouldn’t be able to articulate [the rationale for their spending], because whenever we try to persuade them to do something it’s always a pretty tough argument,” he said.
“They’re not naming the funds so people are assuming it is those big funds, but, in my experience, they’re tough operations that are mostly focused on the dollar.”
The regulator said in its report that it had reviewed funds across the whole sector, meaning it would have covered large and small funds as well as corporate, retail and not-for-profit industry funds.
Mr Dunnin said APRA’s new stance was to be welcomed as “long as it done fairly”.
He said the not-for-profit funds were at a disadvantage in fund spending reviews.
This is because each individual fund has to account for every dollar of its marketing spend, while retail funds owned by big financial groups can benefit from their owners’ spending without necessarily having to include it in their own expenditure.
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