On Thursday, the Australian Prudential Regulation Authority (APRA) reported that 96 trustee-directed products failed to meet the benchmarks of its 2023 superannuation performance test.
Among those that failed the newly expanded test is a “socially responsible” product run by the Australian Retirement Trust, three products offered by ClearView Retirement Plan, three by Crescent Wealth Superannuation Fund, and five by OneSuper.
However, the list was primarily dominated by products owned by Insignia Financial and AMP, accounting for 75 per cent of the failures, with offerings from four fund trustees under these companies’ ownership.
According to Peter Johnston, the executive director of the Association of Independently Owned Financial Professionals (AIOFP), the performance test represents an end to the “last frontier of conflicted injustice for consumers and financial advisers”.
“Although we do not necessarily agree with the ASIC/APRA methodology with measuring performance, it is a step in the right direction to expose and address two very serious flaws in consumer and adviser protection that has flown under the radar for decades,” Mr Johnston said.
“We are also hoping this will be the catalyst to enlighten and educate Canberra bureaucrats on the difference between product manufacturing and financial advice and why they are diametrically opposed functions that need to be treated differently.
“This realisation should also have positive ramifications with how the CSLR funding model is calculated.”
Mr Johnston also took aim at the “conflicted role most research houses play in the advice industry” and the managed investment scheme (MIS) legislation, saying that “both issues have been disastrous for consumer and adviser protection and outcomes”.
“The participation of research house input with both advice and product over the past 30 years has largely avoided accountability, their ‘all care but no responsibility’ approach when products fail is almost legendary,” he said.
“After taking a generous, conflicted fee to positively rate a (destined to be) failed product, they then strategically position themselves behind lawyers and disclosure statements for protection whilst advisers are interrogated/persecuted by the regulator and consumers mourn their losses.
“We agree in theory with the super test direction, but we strongly suggest bureaucrats taking the opportunity to consult with the advisory industry on how it should be structured and implemented. This collaborative approach by ASIC/APRA to pressure super trustees and advisers into consumer-centric outcomes is applauded but the flaws need addressing to be effective in our view.”
Research houses should only be funded through advisers or non-conflicted clients, Mr Johnston said, rather than allowing product manufacturers to pay research houses to rate their product.
“This practice is so widespread in the industry, we recommend legislation banning conflicted payments to protect all consumers and advisers going forward,” he said.
“Government has banned all other conflicted remuneration impacting advice to consumers, why is this allowed to happen?”
Mr Johnston added that the “perfect outcome for consumers and advisers” is for a panel of research houses, funded by ASIC through the adviser levy revenue, to rate all new MIS and current super fund products for consumer and adviser direction before market release.
“We suggest the panel should allocate a rating out of 10 for each product, 1 is poor and 10 excellent in the opinion of the panel,” he said.
“This will give consumers and advisers a clear indication of a product’s worth before considering investing, the ‘caveat emptor’ approach will finally have some measurable substance for consumers and advisers to assess and understand.
“This fundamental failure of consumer protection can be levelled at all past politicians and governments for not recognising and acting upon this critical issue for 33 years, despite numerous warnings from the AIOFP since 1998.”
APRA has its silo and ASIC has its silo, but they have no horizontal coordination for regulation. They both need FAAA to be the Peak Coordinator so that if they fail functional integrated regulation, then FAAA is trusted by advisers to complain to Treasury, which should tell the silo operators to restructure their functionalities for effectiveness and efficiency as regulatory fiduciaries towards beneficiary investors’ optimum results.
Stands and applauds. Uphill battle though with so many vested interests (precisely the point).
There is much argument in our industry, enormous confusion and a significant position which large organisations wish to protect. Every platform service model in employer super is now only slightly different and less and less so with each passing year. I always respect Peter Johnston’s statements as consistent and true and can again thank him for this latest contribution. In commenting about employer super and even super in general, if the public has now agreed that super is a national as opposed to just a personal asset, should account holders be asked if they want an increased part of their asset invested in Australia and potentially in government initiatives like social housing? Any return in such an investment is surely self funded by tax payer’s dollars?
Yes… let’s pay for more from the adviser levy…. Genius…
the APRA approach is insulting in the extreme. Quite knowingly they let the “Industry offerings” play a game of semantics – calling a fund with a lower risk profile – that is in fact a significantly higher risk profile. These opaque structures are a secret little club with spurious titles. Why dont APRA insist on agreed risk measures? why dont the public have half decent way to compare?
Let me explain – a headline rate of return as a measure of the funds’ performance is not only meaningless – its borderline dishonest if you don’t know what risk has been taken to achieve that level of return. It can ultimately only lead to the adoption over time of riskier and risker investment practices to stay on top of the league tables.
Sharpe Ratio, Standard deviation, and or value @ risk – need to be brought into the mix.
Nowhere in any of the available literature is their details of the riskiness or otherwise of the attendant investment philosophy of any of the major industry superfunds.
APRA’s cry — we don’t have any standardized risk measure to assess the against.
Well with some 45%+ of $3.4 trillion under management – when would be a good time to have to have a risk measure. Every and any investment that is open for valuation on the market (as rated by the credible research houses) must have. So why are the industry super funds not display the risks they are taking ( in relation to their peers) to achieve what ever performance they declare.
I agree APRA is the one dropping the ball.
However, the credible research houses – are they the ones that product providers pay to give a rating too?
Sounds a little like the credible accounting firms that didn’t see the implosion of Enron happening.
the test is the problem, not the product manufacturer. And, by extension, does that mean that financial advisers do not have clients invested in a ‘failed’ product? Because, presumably only they could have foreseen the ‘failure’ in the particular investment option?
Well said Peter. As usual. Keep up the good work.