In a note to ifa, AIOFP executive director Peter Johnston said the current selection process for default super options represented a conflict of interest and that the Productivity Commission’s recent recommendation to create an independent default fund selection panel would help rectify this issue.
“Corporates and trade unions selecting their preferred superannuation funds is technically giving advice to their members/employees, which they are not licensed to do so,” Mr Johnston said.
“The corporate or union executives making these decisions should be prosecuted by ASIC for breaches of the corporation law. To make matters worse, these selections are mandated giving members no choice to consider other options that may be better performing or have a lower cost base.”
Mr Johnston said using an independent selection panel to provide new employees with a shortlist of the 10 best performing funds, as suggested by the Productivity Commission, would be a positive step for the industry.
“This resolves one of the most profoundly conflicted arrangements in the financial services industry, institutional product manufacturers ‘shopping around’ and paying conflicted research houses to rate their own products,” he said.
“The same now must be done to protect consumer’s non-superannuation monies from losses due to conflicted research ratings. Advisers should be funding research [not product manufacturers] to ensure the research house is acting in the best interests of the advisers and their clients. We believe ASIC should be levying each adviser to fund a panel of research professionals to assess each product before they are released to the market.”
In its draft report, the Productivity Commission said allowing employers and unions to select preferred funds without holding an AFSL was a “historical oddity” and that the current system “fails to mitigate the risk of defaulting a member into a poor performing product”.
“While some employers are capable and well-intentioned when it comes to choosing a default, many struggle or do not have sufficient incentive to find the best product for their employees,” the report said.
“Default arrangements are a necessity in a compulsory super system. They act to protect members who do not or cannot make their own investment decisions and, in practice, have led to good outcomes for many members, but defaults can also encourage members to disengage from making decisions about their super and thus stifle the competition and innovation.”
Let’s not forget the AOIFP research that brought us Trio and Astarra. How are these clowns allowed to operate and how much do they pay IFA for editorial??
Exactly- If you don’t want to engage with your finances and take good professional advice and PAY for it- then too bloody bad if you are invested in a Sh*t fund. Why do financial advisers now have to face more bloody levies and costs FFS???
names a current sh$t fund? Besides a couple in the last 20 years that have failed, throw a dart at a dartboard and you will be fine…
Then why is it even being suggested to have a panel of default funds???
Interesting to see this statement come out from the AIOFP. I’ve been a member of the FPA for close to 20 years and I’ve never heard such statements from the FPA. I suspect it’s more than likely that this is because the FPA’s many professional partner members are product manufacturers themselves and or the FPA is concerned at up-setting a potential conference sponsor. I say well done, and it’s pleasing for a body to call out the behavior of people connected to a product manufacturer or something linked to a product for once.
This is actually what professionalism is all about. Acting for the good of the public.
Have a look at HostPlus’s default “balanced” option
A quick look at their website and they advertise this;
[i]Hostplus is a top performing investor.
For the year ending 31 December 2017 our Balanced, default investment option returned an impressive 13.40%.
According to the SuperRatings SR 50 Balanced Survey January 2018, this result makes Hostplus the number 1 fund over 3, 5 and 7 years, covering both short and long term investment periods.
We’re proud of our track record and we strive to help our members achieve the retirement they deserve.
[/i]
Delve a little deeper in the not so easy to find investment mix and you’ll find they have 76% in growth assets in their balanced option. When you look at what makes up the 24% in “defensive assets” they have property (5%) and infrastructure (9%) listed in there, which when added to the 76% in growth assets takes them up to 90% in overall growth assets!!
How is this balanced? How do they get away with advertising this? What guidelines do they have to abide by when making the investment allocation mix?
You can be sure of one thing, stick a downturn in the market into he mix and they will, hands down, be the worst performing “balanced” fund
You forget to mention also a convenient reporting period. i.e only twice a year often being June and December. As an example, I had client with two super funds, an industry fund and a not for profit fund. The industry fund like Hostplus reported returns only twice a year. The second fund reported daily. The client wanted to pull money out during a market down turn in October, due to “poor” returns as they were comparing returns to the previous booming period ending in June. Upon further investigation, the daily reporting fund when compared to the Industry super fund performed much better.
Pass performances don’t guarantee future returns.
Paul Keating did a great job in getting superannuation on the table and being actioned. He failed in not making it just one fund.
Imagine if we had one default fund which could help fund all infrastructure projects, there would also be no need to sell of assets to foreigners, the default fund could buy these assets and own them for the benefit of the country and all Australians into the future. further the profits would remain in Australia.
Why cannot this still be done?
Because that probably wouldn’t be popular. Its more popular to complain about ‘tax cuts to big business’ and give handouts… That’s how you get into power.
Were a genuine chance of running a surplus way earlier than imaginable but dont hear much about it… Shows how backwards politics is.
what happens if that one fund, one project didnt return. The Gov, and everyone would be up the creek!
Many employers are also providing unlicensed financial advice via the recommendations their HR and payroll people make about super. But both ASIC and the Royal Commission have shown they don’t care in the slightest about unlicensed financial advice. They have given the green light for payroll administrators, union officials, accountants, real estate agents, book authors, and media columnists to dispense whatever advice they like with complete impunity. Rampant unlicensed financial advice poses far greater dangers to consumers than the small percentage of bad licensed advice.
Good point. That is why “general advice” will go soon and be replaced with general information. That way, a statement by a person in relation to a financial product is clearly either personal advice or it’s not.
sounds like more red tape, and cost. As long as employees have the choice it is up to them to look at their options, as much as I dislike the unions this is a stupid idea, people need to start taking responsibility for their actions or no actions, were all getting a little precious.
As advisers we would never make a recommendation on a super company based on performance alone as the justification so why should the funds on the shortlist be chosen just because they are the “10 best performing funds.”
As a risk only adviser I DO NOT WANT to pay for the investment performance research suggested by AIOFP. Remember ASIC thinks we are all the same. Not a good idea AIOFP, unless pure riskies are excluded
What specific section of the Corporations Act has been broken? We absolutely need structural reform to default fund selection. However, making sweeping statements recommending prosecutions without backing them up with facts takes away from the real issue.