ASIC flags retirement comms gaps, points to DBFO as solution

Retirement outcomes have been a significant area of attention from the government and regulators in recent years, with the Australian Securities and Investments Commission’s (ASIC) latest report taking aim at super fund trustees’ communication with clients.

Report 818 From superficial to super engaged: Better practices for trustee retirement communications, found some trustees offer one-size fits all retirement communications aimed primarily at pre-retirees, with ASIC noting they are missing opportunities to “engage with members throughout retirement and provide more meaningful support”.

“Over 1.5 million members are in the retirement phase now, collectively holding approximately $575 billion in superannuation assets, and more than 2.5 million Australians will enter retirement over the coming decade,” said commissioner Simone Constant.

“However, ASIC’s Moneysmart research suggests only one-third of Australians on the cusp of retirement are confident that they will be financially comfortable once they leave the workforce. It is important now more than ever for superannuation trustees to focus their attention on providing meaningful, and timely retirement communications to their members that can meet their needs.

“Moreover, members entering retirement typically hold larger balances, require more tailored solutions and expect high-touch support. Trustees that can meet these needs stand to unlock powerful commercial outcomes: stronger member retention, deeper engagement, and scalable growth.”

According to the regulator, its review found “little evidence” that trustees are actually tailoring their communications to member needs.

Constant said the message to trustees is that a one size fits all communication approach simply will not work for all members.

“Trustees have developed significantly fewer communications targeted at retired members. Most of these targeted communications were more relevant to members in the lead up to, or in early stages of retirement, which given the size of the retirement wave already breaking, is a real missed opportunity,” she said.

“It was disappointing to see the retirement communications practices of participating trustees largely overlooked the specific needs of First Nations members, vulnerable members and culturally and linguistically diverse members. None of the trustees we reviewed developed specific retirement communications for vulnerable members.”

ASIC did, however, note that there are regulatory barriers that have held super trustees back.

“We note the upcoming Tranche 3 of the Delivering Better Financial Outcomes reforms could provide an opportunity for trustees to expand the use and content of their nudges,” the report said.

The regulator said there are still options under the current regulatory framework for super funds to deliver “deliver targeted retirement communications to member cohorts” through nudges.

“We understand a nudge to be a message prompting the recipient to consider taking a certain action, or series of actions. An example of a retirement communication nudge is a short, targeted message encouraging members approaching retirement to access retirement planning resources or seek financial advice,” the report said.

“Most nudges we observed were age-based and sent to members upon reaching a certain age (e.g. 55 or 60). Some nudges were sent based on behavioural or transactional triggers including opening an account, attending an event or accessing a resource.

“Better nudges have trigger events which are appropriate, so that the message sent is likely to be relevant to the member receiving it. Trustees may leverage their data and research capabilities to develop appropriate trigger events.”

The way that these nudges operate has been a contentious feature of the DBFO reforms, with the Financial Advice Association Australia (FAAA) arguing that the proposed mechanisms could amount to advice based on limited knowledge of a member’s circumstances, without the consumer protections attached to regulated advice.

The FAAA said it was particularly concerned about the use of nudges in retirement decisions that “are so important and often cannot easily be reversed”.

It warned these tools must not become “a blunt product sales exercise” and should always include a recommendation that members seek personal financial advice.

“The focus of the ‘nudge’ should be the member’s personal circumstance, more than it is with respect to any financial product,” the association wrote in a submission to Treasury.

“Nudges should also not be used as a substitute for genuine personal financial advice.”

The submission urged Treasury to clearly define the boundary between factual information, guidance, nudges and financial advice.

“The policy settings must make it clear as to the boundary between ‘information and guidance’ provided to a member by a trustee, ‘nudges’ trustees give members, and the provision of financial advice, including general advice and personal advice,” the body said.