Super switching ‘catastrophe’: Longo backs more friction in member movement

Speaking at the National Press Club on Wednesday, ASIC chair Joe Longo used the opportunity to bring more attention to the fallout of the Shield and First Guardian collapses.

According to Longo, the high-profile failures have provided an “opportunity to strengthen the system for all Australians”.

“I am repeating ASIC’s view of the need to strengthen requirements for managed investment schemes, improve data reporting, and give ASIC the powers we need to oversee this sector effectively,” he said.

“I want to acknowledge the work the Assistant Treasurer has been doing in considering this very important issue.

“Other ideas should be considered, including disrupting the lead generation businesses that trick consumers into moving their super, slowing down the superannuation switching process, reconsidering the retail/wholesale test, and extending the proposed prohibition on unfair trading practices to financial services.”

The regulator also needs to look ahead, he said, pointing to the rapid growth of super fund platform trustees, which have seen investments increase 14.5 per cent in the year to June.

“One of the key themes of ASIC’s work in recent years has been to highlight superannuation trustees’ critical responsibilities to members. That’s why we keep asking whether trustees are doing enough to meet their obligations, including when things go wrong,” Longo said.

“This isn’t a question for ASIC alone – it’s a challenge for all of us. Getting it right will mean greater investor confidence and a more resilient, diversified market.”

Responding to the ASIC’s reports on private credit and capital markets, released on Wednesday, Financial Services Council (FSC) chief executive Blake Briggs said the loopholes that allow for “harmful” lead generation practices need to be closed, along with backing reform to managed investment scheme registration requirements.

“We look forward to continuing to work with ASIC, Treasury and the broader industry to ensure each of these proposed regulatory reforms strike the right balance between facilitating capital availability, protecting investors, while ensuring competition in the superannuation sector and the ability for individuals to exercise their legitimate choice of superannuation fund is preserved,” Briggs said.

During his National Press Club appearance, Longo also reiterated the regulator’s stance that there needs to be more “friction” in the process of members switching their super.

“The superannuation-switching catastrophe that’s been unfolding with First Guardian and Master Shield and related funds, it all started with ordinary Australians, in many cases, moving, in my words, their super from a relatively safe, conventional environment into a high-risk environment,” the chair said.

“And there’s plenty of blame to go around for what went wrong there. And one of the things we’re suggesting is that we need to slow people down a bit.

“And that essentially means, if you go and buy a house or a car or a major financial investment, I mean, most of us put some time into that. We don’t do it on the same day. And unfortunately, because of the industrialisation of the approach to this misconduct, a lot of Australians were talked into moving their super on the same day or the next day. It’s pretty bad.”

Arguing that the super sector would be open to introducing more friction into the switching process, Longo added that any changes need to be “thought through”.

“No one wants to preside over a problem like this if there are some potential solutions. So I think there’s going to require some engagement with the sector as to what the practical solutions might be,” he said.

“And secondly, the frictions may not be for every transfer. So if you’re transferring your money from one safe place to another, then that’s fine. I think the remedy we’re looking for, or the issue we’re trying to deal with, is people sending their money to odd places.

“Still within regulated super space, ironically, but sending their money to an entirely different space and very quickly. And remember, that often involves lead generators and financial advisors.”

He added that there could be something akin to a cooling off period introduced, where funds can’t be moved for three days.

“That’s three days they’ve got to get a second opinion, have second thoughts. It’s as practical as that. Because some of the misconduct, as I said earlier, it all happens very quickly,” Longo said.

“Anything that just sort of slows people down, makes them think, sleep on it. We all know from life experience that if you slow things down, you give yourself a better chance of making a wiser decision.”