In June, the government announced that it would include Choice and superannuation wrap products in the Your Future Your Super (YFYS) performance test, extending its scrutiny beyond MySuper products.
Not long after, Philip Anderson, general manager for transformation and policy and advocacy at the Financial Advice Association Australia (FAAA), said this expansion would significantly impact advised clients and result in increased workload for advisers.
Speaking to ifa post the release of the test results on 31 August, Mr Anderson revealed that, as previously predicted, concern among advisers is rising.
“We have had a number of enquiries by members on this issue to understand how it might work,” Mr Anderson told ifa on Tuesday.
Namely, on the last day of August, the Australian Prudential Regulation Authority (APRA) revealed that 96 trustee-directed products had failed the test, with 75 per cent of these belonging to Insignia Financial and AMP.
APRA clarified at the time that 28 September would be the due date for trustees of the failed products to notify their members.
Mr Anderson said he anticipates that it is post this date that the industry will jump into action.
“This will be [a] big trigger for activity.
“We are expecting the impacted trustees to brief the advisers who have clients who will receive the failure notices. We trust that this is being worked on at the moment and will be available to advisers on a timely basis.”
Mr Anderson noted that once advisers are armed with this information, they will be in a better position to proactively communicate with clients.
He also highlighted that in some instances, products that were said to have failed may actually have recorded a false positive. According to Mr Anderson, the assessment methodology could have driven the 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.”
Moreover, Mr Anderson highlighted that there are also a range of reasons why it may not be in the client’s best interest to move products, such as for tax purposes.
“Advisers will need to have given consideration to all of this before talking to clients.”
In a previous conversation with ifa, prior to the release of the YFYS test results, Mr Anderson urged advisers to be on the front foot for whatever comes.
“Some clients will be oblivious to it, and I guess so be it, but others will pay attention. This will get media coverage, so there will be a whole host of people who are very uncomfortable that they are in a product that has been deemed to have failed,” he said.
“Having that support from their adviser will help them to avoid making decisions on their own, which will ultimately lead to their disadvantage.
“What we’re saying is, pay attention to this. It’s not far off now. It’s going to be in front of us fairly shortly, so get on the front foot. Make sure that you’re communicating with your clients who are impacted. Make sure that you’re set up for it and that you’ve got access to data on which clients have which products so that you can respond quickly.”
I think the simplest solution is for these advisers is to move their clients into better products.