Financial advisers are among a group of stakeholders the corporate regulator has called out in its latest statement following a review into the role super trustees, advisers and their licensees play in influencing the investment options in member super portfolios.
The Australian Securities and Investments Commission (ASIC) said on Wednesday that the results of the review were concerning. Namely, it found that advisers were not always addressing underperformance where relevant.
Having reviewed 88 advice files across 26 advice licensees, focusing on advice provided about nine options that all persistently failed to meet performance expectations, the regulator said it is considering a “range of regulatory responses” where the results of the review were concerning.
This, it said, includes 11 files where it identified advice deficiencies revolving around failure to undertake reasonable assessment of the underperforming option nor explain why retention was appropriate. In these cases, advisers recommended clients retain between 38 per cent and 100 per cent of their superannuation balances in an underperforming option, ASIC said.
Commenting on the findings, ASIC commissioner Simone Constant said: “Australians trust their super funds and financial advisers to ensure they’re getting the best possible returns on their super savings. We expect funds and advisers to ensure that trust is not misplaced,” Ms Constant said.
“Members should be informed about their super investments – not left in the dark if their super investments are not performing as expected, and there may be better alternatives.”
The regulator said its review confirmed trustees, advice licensees, and advisers should undertake performance-focused due diligence before offering investment options to members, approving options for use by advisers or recommending them to members.
Moreover, the regulator cautioned them to “take care” to ensure they do not fail in their duties by over-relying on each other or external rating agencies when performing their roles.
ASIC also detailed its expectation of advisers, noting that they should treat performance as a primary consideration and, where an option is underperforming, communicate why their recommendation is appropriate despite the underperformance and based on the client’s relevant circumstances.
Regarding advice licensees, it said they should adopt “rigorous processes” to detect and deal with underperforming investment options when approving products for use by their advisers, and address issues in a timely manner.
“As more Australians approach the drawdown on their hard-earned retirement savings, it’s critical the super and financial advice industries make sure they do everything possible to promote informed and confident investment decision making by members,” said Ms Constant.
“ASIC, along with APRA, wants to see industry focus on ensuring fund members are achieving good investment outcomes that ultimately support stronger outcomes in retirement. This work on Choice products is part of that,” she said.
ASIC’s review focused on advice related to underperforming options, not overall compliance with the best interests duty and related obligations.
Simply insane.
Will this apply to “Qualified Advisers” as well ?
Investing fundamentals are clearly not ASIC’s gig.
Mr Regulator
What about moving someone in the Pension phase and losing their grandfathered status?
Moving Super fund and the insurance attached, cover, cost lost benefits and retention of this as it meets the clients needs?
Product was not the solution, this is what you preached us, Can the current fund meet their needs was what you drummed into us?
You have made it so hard to move a client on reasonable basis, now how do we justify moving someone on performance when past performance is not indication of future performance. Then the new fund underperforms the old fund, who has their arse on the line, it is not you.
Let there be absolutely no doubt that when MP Stephen Jones announces the entry of the ‘qualified adviser’ to provide free advice for ISF’s members, that every single one of them will not be subject to any APRA or ASIC Performance Review.
Commenting on the findings, ASIC Commissioner Simone Constant said: “Australians trust their super funds and financial advisers to ensure they’re getting the best possible returns on their super savings. We expect funds and advisers to ensure that trust is not misplaced,” Ms Constant said. Sorry Ms Constant, financial advisers have to screw down on asset allocation and comply with APRA’s SPG530 guidelines in the first instance, which trustees are governed by. Ms Constant, you should talk to APRA to insert an Exclusion Clause into SPG530 that permits advisers to comply with ASIC’s RG244 to act in the client’s best interests and pursue “… the best possible returns on their super savings.” Treasury failed to manage the conflict between APRA guidelines and ASIC regulations that has caused suboptimal superannuation investment returns of superannuation members. The two regulatory silos are in conflict, where each ignores the other and financial advisers are being grilled in the middle. Treasurer Jim and Financial Services Minister Stephen, can you do your regulatory governance research?
Are ASIC investigating hindsight now?
A myriad of responses come to mind, with the obvious being “past performance is not indicative of future performance.” Our investment recommendations are based on a client’s risk profile – not any generic portfolio that has produced a high return in the past twelve months! Superannuation is generally a long-term investment. Various asset sectors are all subject to periods of volatility in the short-term, and may outperform in the long-term. Further, we do not engage in trying to ‘time’ the market as there is NO crystal ball gazing when it comes to determining an appropriate investment portfolio. Thus, I will gladly have ASIC determine the appropriate investment option for my clients as we will know where to point the finger if performance is substandard over the next twelve months!
Did he just advise clients to sell at a loss if they have on bad year
ASIC don’t really understand risk v return and investment horizons in excess of 20-30 years, I’d love to go 1v1 with ASIC in public regarding my clients investment strategies
So for years ASIC and Dealer Groups have been pushing the mantra that performance is for Fund Managers, advice is for Advisers; and as such the focus should be on matching Funds with risk profiles. Now performance is another thing they’re going to whip someone for?
Also say “Past performance is not a reliable indicator of future performance.”
Someone doesn’t understand very well how the financial markets work. People shouldn’t chase the market. Otherwise, we will all be day trading shares.
When does the review start on ASIC underperforming and overcharging???? !!
I am only considering that you cannot use performace to justify your position to change the underlying fund, what do they consider underperforming? I feel that, yes, some funds do underperform, but constantly changing it over and over is a concern. If it is underperfoming for more then 5 years, agreed. The planner should have considered this after a few years. Damn if you do, and damn if you don’t. I am not concerned about what ASIC think considering none of them people who look at files have any experience in the field of financial advice anyway.
Lets say you have used an asset consultant to set up your own SMA on platform , and they preform bottom quartile consistently to peers. And you have $500 m in your SMA, I’d say you will have to move them for a lot of firms that’s a incredible big deal – legal action against your assets consultant?
ASIC can smell blood in the water
Ah, regulator mandated ‘churn’……