APRA test could pose strain on clients’ ‘advice relationship’

On 31 August, the Australian Prudential Regulation Authority (APRA) revealed that 96 trustee-directed products had failed the 2023 Your Future Your Super (YFYS) performance test, which for the first time, extended its scrutiny beyond MySuper products with the inclusion of Choice and superannuation wrap products.

APRA clarified at the time that 28 September would be the due date for trustees of the failed products to notify their members.

Since then, Phil Anderson, general manager for transformation and policy and advocacy at the Financial Advice Association Australia (FAAA), has noted that it is still early days on the other side of the notification deadline, with more time needed for a robust picture of how both members and their clients have been impacted.

“We did get a lot of feedback initially in response to the announcement, in what must have been the start of September, by APRA. Members, who then became absolutely aware of the fact that some of their clients were going to get these notices, were quite concerned,” Mr Anderson told ifa.

“We’re very much open to feedback from our members on how that whole process has gone. Although it may be that they are still in the process of contacting clients and maybe arranging meetings to see them. So, it may still be quite early in the process.”

However, as he has previously noted, products that were said to have failed may have, in some instances, recorded a false positive.

This could present a point of tension between members with impacted clients, and as such, is of concern for the FAAA, according to Mr Anderson.

He recalled a recent conversation with an experienced adviser who had been working within his business on this issue, with the adviser expressing that he was conscious of a range of reasons as to why the outcomes may be a false positive.

“Certainly, the evidence that he had seen was that it was quite prevalent in the clients that they were working with,” Mr Anderson recounted.

“So, whether there’s a way of solving that, that’s really a challenge for APRA and the government going forward. We would want them to have a close look at this, because it is not a good thing for clients to be unnecessarily disturbed – disturbed about the product that they’re in, but also the advice relationship that they’re in.”

He warned that for clients that feel as though their adviser has put them in a product that has been assessed as failing, this may undermine the strength of their relationship.

“And particularly where it’s a false positive, that is not a good outcome, and it’s not one that we would want the system to facilitate.”

In a previous conversation with ifa, Mr Anderson clarified that the assessment methodology of the APRA test may drive a negative outcome rather than genuine failure to perform.

“That [failure] might be due to issues related to the size of the investment. The YFYS testing is done on the basis of a $50,000 account balance. On average, wrap products have much higher balances, and this might make the difference,” he clarified last month.