APRA releases research on superannuation outsourcing

The Australian Prudential Regulation Authority (APRA) today released the results of research into outsourcing by large APRA-regulated superannuation funds.

The research examined the outsourcing of eight functions - auditing, administrative services, legal services, asset allocation, sales and marketing, custody, actuarial services and investment management. It compared the fee arrangements of independent service providers to those providers related to a fund trustee, and compared fees across different service sectors to determine the extent to which providers in more concentrated markets charged more than providers in more competitive markets.

The key findings of the study are:

• outsourcing is widespread, to the point that selecting and monitoring service providers constitutes one of the principal responsibilities of a superannuation fund trustee;
• not-for-profit funds (consisting of corporate, industry, and governmental funds) were more likely to outsource than retail funds, even more so when one looks through formal outsourcing arrangements with related service providers;
• for some services, on average, trustees of retail funds pay higher fees to related service providers, particularly for administration, compared to independent service providers; and
• in highly concentrated markets such as custody, actuarial services and auditing, dominant service providers charge higher fees.

APRA Deputy Chairman Ross Jones said the findings provide a better understanding of trustee outsourcing. 'The findings provide industry and members with a clearer picture of the outsourcing arrangements and fees of trustees of APRA-regulated superannuation funds.'

While 187 superannuation funds participated in the research survey, analysis was limited to the 115 funds that provided five-year fund-level investment returns.

The results of the research have been published on the APRA website in two Research Working Papers: Australian superannuation: the outsourcing landscape, which examines outsourcing patterns of fund types; and Australian superannuation outsourcing: fees, related parties, and concentrated markets, which examines fee arrangements.

The Research Working Papers are available via the historical snapshots of APRA's website on the Australian Government web archive.