Trade union and corporate executives selecting preferred superannuation funds are technically providing unlicensed advice to their members and staff and should be charged for violating the Corporations Act, the AIOFP has said.
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.”
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) has refer...
FASEA has announced its August exam sessions will only be offered remotely for V...
A major platform provider has made changes to its functionality to make it easie...