Heron 2009 ERF Ratings finds “stronger competition” as record 4 Funds awarded highest rating

Released: 13 May, 2009

National Preservation Trust tops the ratings for 1^st time

The Heron Partnership has finalised its 2009 Heron Quality Star Ratings assessment of Eligible Rollover Funds revealing substantial improvement across the board and stronger competition, with a record four funds awarded Heron’s highest rating.

Heron congratulates AUSfund, AMP ERF, National Preservation Trust and SuperTrace on achieving the highest award of 5 Heron Quality Stars.  National Preservation Trust has been named the Top Rated ERF for the first time.

In 2008 SuperTrace was classified as an “outstanding” product receiving 5 Heron Quality Stars.  However, this is the first time that the AMP ERF and National Preservation Trust have received 5 Heron Quality Stars.  Last year both products were classified as “commendable” receiving 4 Heron Quality Stars.

The Heron Partnership’s Managing Director, Chris Butler, said “This is the first time four ERFs have been awarded 5 Stars and is a demonstration of much stronger competition than previous years, with little separating the top four ERFs.”

“The most pleasing aspect of this year’s assessment is that many products have significantly improved their product features, transparency and service offering.  However, there remains a serious gap between the high quality ERFs and some of the lower rated ERFs.”

“We also congratulate AON ERF for being awarded 4 Heron Quality Stars due to it being judged as a ‘commendable’ product”, Mr Butler said.

“Although the combined assets of ERFs have fallen over the past 12 months from $5.7b to $5.4b they continue to be an important sector of the superannuation market with increased competition in the market and increased surveillance by APRA.  Membership has grown from about 5.2m to a little under 5.9m, despite efforts to reduce the membership size.  Continued membership growth is an indicator that more needs to be done within the industry.”

Methodology

The Heron Partnership utilises a holistic methodology to assess and rate the various components of an ERF based on four key Areas of Importance: Organisation; Investment Arrangements; Relocation Activity; and Impact of Fees.  Organisation has a 10% weighting, whilst the other three Areas of Importance have a 30% weighting each.  The maximum score a product can achieve is 100; the National Preservation Trust received a score of 85.61 and AUSfund 84.26.

Mr Butler revealed the ERFs that received the highest scores in each Area of Importance:

Organisation:

AUSfund (Other strong performers were: AMP ERF, ISP ERF, National Preservation Trust, AON ERF, Public EFR, SuperTrace)

Investment Arrangements: 

Public ERF (Other strong performers: AUSfund, Synergy Secure, ISPF ERF, National Preservation Trust, Super ERF)

Relocation Activity: 

AUSfund, Super Safeguard, SuperTrace & Super ERF (Other strong performers: AMP ERF, National Preservation Trust)

Impact of Fees: 

AMP ERF (Other strong performers: National Preservation Trust, Advance ERF, Norwich ERF) 

Wendy Barton, an Executive Director of The Heron Partnership again led the ERF assessment process. 

Ms Barton said, “In undertaking our assessment of Organisation we experienced significant recent improvements in service levels.  Many ERFs are now more transparent and quicker in passing on information.”

Ms Barton said that Heron’s assessment of Investment Arrangements rated ERFs with the following characteristics more highly:

 ·         an ‘external’ investment adviser and ‘external’ investment managers;

·         a diversified global investment strategy;

 ·         a well constructed investment objective which is able to be measured;

·         success in achieving the investment objective;

·         a well constructed investment strategy to achieve the objective;

 ·         full allocation of the earnings of the ERF;

 ·         crediting rate and net gain % to members achieved;

·         having regard to the peer group in that investment classification;

 ·         and no tiered crediting rate policy that credits higher returns to higher account balances.

“In terms of Relocation Activity, many funds have continued to improve their activity to locate lost members and to simplify access of documentation and cross fund matching.  Several ERFs are now pleased to share their success stories.  This transparency is a positive move within the industry that must also please the government and regulators alike."

“Unfortunately, there still remain some ERF’s that do not have a web site or have limited functionality and make contacting them more difficult”, Ms Barton said.

“To assess the impact of fees we selected four account balance sizes ($100, $1,000, $2,000 and $10,000) for fee comparison purposes.  For each of these cases we had regard to the asset-based fees that have been deducted before the crediting rate has been set.  This year, as member protection impacts are important, we calculated the ins and outs to a member account balances.  It was the overall net position that we then rated.  Using this approach clearly favours those ERFs that achieved positive returns.  The highest achieving funds credited positive returns due to the capital guarantee nature of their investment arrangements.  No other funds had positive returns.  AUSfund credited 0%.”

“We found variations in fees deducted from member accounts and different applications of the member protection rules.  Some funds have a fee structure that suits higher balances whilst others are better for the lower balances.”

“We understand the importance of a feeder fund selecting the most appropriate ERF but whilst ERFs offer only one investment option and may have a fee bias for different account balances that decision is difficult to make across a whole membership base.  Perhaps the ability of the feeder fund to select the most appropriate ERF on an individual member type/amount basis may result in a better initial matching of the small account balances and lost members accounts.”

Mr Butler concluded “The primary goal of the Heron Quality Star Ratings is to provide a realistic and objective representation of a product’s strengths and weaknesses.  The ratings are based on feature specific benchmarks, which guide Heron’s assessors to rate the feature objectively, with all products being rated on the same basis.  The ratings for each feature are aggregated to an overall numeric rating for each product.”