Considering the impact the superannuation performance test has on consumer decision-making, its current limitations should be addressed before any substantial changes, according to the Financial Advice Association Australia.
In a Treasury submission, the FAAA said that the performance test has “been effective in driving a reduction in the number of funds that fail [it],” which is a measure of its success since it was introduced in 2021. Despite this, the association said there were “legitimate questions” about how the test was designed.
“It is our view that Treasury should first address benchmark design issues, finalise its approach to alternative and emerging asset classes, develop a robust investment taxonomy, undertake comprehensive back-testing, conduct consumer testing and consult with advisers and professional bodies before extending the test more broadly,” the FAAA said.
The association also suggested reviewing whether the test’s $50,000 member balance benchmark remains appropriate, considering that the average per-member super balance is now around $170,000.
“Using a materially higher amount would make the test more relevant to the average consumer,” the FAAA said.
Of the specific proposals in Treasury’s consultation paper, the FAAA focused on the fourth option: expanding the test to “externally-directed accumulation products.” According to Treasury, this could bring up to 7,500 additional products, mostly offered via platforms, into the test’s scope.
Treasury’s paper suggested that expanding the test to cover these products would “provide greater transparency and scrutiny of performance” in cases like Shield and First Guardian, but the FAAA took a different view.
“The Shield and First Guardian collapses highlight the importance of strong consumer protections, governance arrangements, disclosure and regulatory oversight,” the association said.
“While these events strengthen the case for reviewing the scope of the performance test, they also demonstrate that no single regulatory mechanism can substitute for strong governance, disclosure, regulatory oversight and access to professional financial advice.
“Where fraud and misrepresentation of performance occurs, it is not possible for the superannuation performance test to identify this.”
