ASIC admits it has never investigated industry fund advice

The Australian Securities and Investments Commission (ASIC) has indicated that it will be looking at financial advice provided by industry funds in the context of another project on the broader question of advice in superannuation.

Answering questions during Senate Estimates, ASIC deputy chairman, Peter Kell acknowledged that the regulator had never looked directly at industry funds with respect to their compliance with the best industry duty under the Future of Financial Advice legislation.

Answering questions from the chair of the Committee, Victorian Liberal Senator, Jane Hume, Kell sought to explain why the regulator had focused on advice provided by the banks and AMP and noted that the lessons learned from that exercise could be translated to other vertically-integrated entities.

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“…we've been at pains to highlight that there are lessons here for any vertically integrated firm that's operating in the financial services sector,” the ASIC deputy chairman said. “I think it's important to note that what the regulatory regime expects of financial advisers is, irrespective of the sort of business model they're operating under, they will prioritise the interests of the client, provide appropriate advice and act in the interests of their client.”

“So if there are conflicts of interest in that business model, irrespective of where you are in the financial services sector, you need to manage them in such a way that you can deliver on that promise,” he said.

Asked by Hume whether ASIC had actually ever looked at industry funds' compliance with their best-interest duty, Kell acknowledged that it not done so, per se.

“We are looking at doing some further work on advice in superannuation, so that may well capture that issue you're talking about, yes,” he said.

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What a surprise. Any adviser that believes we're not just a hitjob for ASIC and the industry funds is crazy

Spot on Matt, this proves what we all thought, that the ISA has been untouchable, and not even considered when ASIC do survellience. This is totally wrong with the amount of advisers working for these funds and the amount of FUM they control. They need to be audited for best interest duty's sake to make sure every single client they have advised to stay with the fund have been offered alternatives to consider, you know the existing/ recommended and the 3rd fund for comparison, just like we need to.

Agree TJ & Matt, however this is ASIC's way of giving the ISA long enough lead up time to clean up the bad files we know they would have to have, and bury deep any smelly fish, so that when ASIC finally briefly 'investigate' they will hold them up as bastions of virtue and wonderful advice (in much the same way they proclaimed the CPA would be...)

This is negligence of the highest degree. They tell us they are trying to protect consumers and then totally ignore a huge segment of consumers who could arguably be considered some of the least educated and most in need of guidance and review, simply because they are getting "advice" from their super fund in the first place.

The huge segment of customers/clients (very telling that you described them as consumers) are obviously missing out on high fees, marginal performance, and less than reasonable returns. Silly them. Ignorant them.

..and on cue here comes the clown, extolling the wonders of the ISA and propagating their BS propaganda. Don't you ever get sick of pretending that you're anything but their slack jawed vulgarian and rube Richard Hedware? (sure you'll work out the first name, bud)

No not a surprise at all. Compare the pair and see what best interest is

So what Mr Kell has stated on the record is they have failed in their job. They have looked at only one area of the industry, dragged their name through the mud, for the benefit of their union mates. How does an union fund met best interest duty when they only give advice on their fund only, don't research clients existing funds and just consolidate everything to their fund (every time!) often under the guise of general advice? ASIC then comes out and says they are worried about vertical integration when they haven't even looked at the most vertically integrated area of the whole industry.

You have failed in your research as well. The poor governance and performance by certain retail funds and retail advisors was of their own making. All the ASIC did was to expose their misfeasance.
There is no evidence that the ASIC were colluding with industry funds although it should have scrutinised those funds, but guess its hands were full in dealing with all the messes caused the banks and their wealth advisory arms, and the lack of professional responsibility shown by many less-than-independent financial advisors.
Industry funds have employer as well as employee representatives on their boards - they are not simply union mates and the directors representing employers would resent this allegation.
It is difficult to understand how the strong vertical integration of self created products, loans, funds and financial advice manifest within the banks has any equivalence within the industry funds. You might be thinking that industry funds cover particular industries, but banks et al don't want to be so limited in their customer acquisition.
Lets hope that the Royal Commission will confirm or debunk these myths about industry funds.

Sure, let's go through this together:

Industry funds cosied up to Bill Shorten via $27M in union subsidies, funded partially from members' fees;
Industry funds and worker entitlement funds deliver $900M in fees and sponsorships to unions annually;
Industry funds have vertical integration similar to banks, via as you put it "self created products, loans, funds and financial advice"
self created products and loans via ME Bank, which is owned by 29 industry funds
funds - this is pretty easy. Have a look at what each fund inside an industry super fund is called. For example, REST Super's options are all REST investment choices. I'm not seeing anything that isn't run by REST such as IOOF or ANZ unless I'm mistaken; And
Financial advice - All done via their own advisers, for example, REST Advice

But, hey, nothing like a bit of adviser bashing to fit your narrative.

Matt, where do you get numbers like 900M from with any accuracy?

Just from comments by the Employment minister in September 2017 that weren’t disputed by anyone in opposition. Try google

Correct Matt and let's not forget both the reduced member insurance benefits while collecting commissions from insurers for the ISA cash cow, the 'endorsements' such as corporate box invitations for employers at big games which are outlawed in our world, as well as the all inclusive and opaque 'indirect member fees' which you will find squirrelled away in the fund financials towards the last page but never mentioned anywhere else and definitely not on the actual member's statements. But hey, we all know Dick here (Head-ware) will always speak ill of retail or planners and yet never suffer anything to be said against the ISA. Maybe he actually IS Kell under pseudonym? Wouldn't that be hilarious :) He's certainly no planner and definitely not one of any worth if he is so shallow in his investigation and research.

Answer one very simple question " Hedware" ?
Please don't frame it in a lengthy explanation and opinion about retail funds etc.
Do you believe it is ethical and appropriate that Industry Super Funds donate or contribute millions of dollars per year to Unions ?
simple question requires a simple answer...just yes or no will suffice.

There you go thinking everything is black of white.

A self evident answer. The dollar amount donated by the 'union' side will never match the dollar amount donated by the big accounting and consulting firms, the banks, the fee advice industry and the rest. Somehow you keep forgetting about the other side of the ledger. Good professional financial advisors keep a balanced view of the world in the best interests of their clients. Try it.

"A self evident answer." - Or in other words, yes. That's all you needed to say.

Do the big accounting and consulting firms, the banks, the fee advice industry and the rest pay lobbyists and politicians? Yes is all you need to say. Why? Because they do.

The point of the question and the article is ASIC has failed in their duty to hold the union funds to the same standard as all other participants in the financial services industry. To completely ignore such a large and vocal participant, while dragging all retail funds and advisers through the mud shows a clear bias. What are the union funds and ASIC so scared of finding if they were scrutinised to the same degree as the banks and AMP? How you think that vertical integration does not apply to union funds is astounding, but demonstrates the arrogance the union funds, backed by the support of the ALP in drafting rules that directly benefit them, and the complete inaction of ASIC.

Haha wow, you just got absolutely smoked. A fund giving advice that has no other options is vertical integration in its finest sense. And make no mistake - the quality of advisers in industry funds is generally poor at best. There are some great ones, but they soon realise they can make a lot more for their advice with an open APL, allowing them to act in their client’s best interests every time.

I hope the royal commission allows every fund the ability to pay for an ongoing advice fee. I have no issue with leaving my clients in an industry fund where appropriate, however denying those who usually have lower balances a choice to pay for a non-aligned adviser to create a strategy and asset allocation specific to them is criminal.

Seriously, if the Industry Funds had brains, they would already be allowing external advisers to deduct ongoing advice fees from their own super super funds. If they opened up that option, they would see a huge increase in FuM.

Yes. Winners all around if they permitted independent professional advisors. But I consider that the quarterly or regular fee for service is the best approach for advisors and their clients.

They do allow ongoing and one off adviser fee deductions. SunSuper even did a value of financial advice report to promote the value of advice. There are many others that allow this.

"Fact Check" I think you will find there are only 16 Industry super funds and Sunsuper is not an industry fund. It is a "not for profit" fund and I have used them in the past. However I can not currently put in an invoice to any industry fund for advice fees so they have restricted the market. Also the research available on many funds is not of sufficient quality and independance to satisfy my compliance people. For example a balanced fund with over 80% in growth assets is viewed as potentially misleading to clients and is so far from the ASIC Smart money definition of a balanced fund that compliance will not take the risk on it. Personally I tend to think growth is a good option with the current low returns of cash, but FOS will accept any client is conservative if there is a complaint, so compliance will not allow me to accidentally mislead a client into an incorrectly named fund. Basically the system is broken, but everyone is hoping education will fix everything....

Hey RobinBris the fact that Industry Fund default options are all actually Growth options according to their asset allocations shouldn't stop you from using them. Just do your normal risk profiling and choose the option with the appropriate asset allocation - your Growth clients will go in the Balanced option, the name means nothing when it comes it industry funds.

Regarding the ability to charge fees through Industry Funds, I've tried to do it through Australian Super but it must be set up at the Licensee level first and my licensee have said they've been trying for over a year to get it up and running and now they've been told that Australian Super are reviewing their process and can't set up any new licensees at the moment. Even if it were available, your licensee would need to go through this process with each industry fund individually. basically they've allowed the licensees that have agreed to not recommend alternate super funds to charge fees through the accounts but anyone with an open APL can't.

Brett have used Australian Super and billed clients via their facility, but, what a drama. After about 9 months, a lot of complaining and emails back and forth it came through. I'd use that arrange only for clients I could bill direct. My dealer group ( 200+ advisers) already requires me to sign four separate documents to charge once off and ongoing fees and some Industry funds require a further form on an annual basis in addition to the application in the PDS.

And did the good Senator ask Mr kell to explain why that was..?

WOW! These funds have been publicly defaming and undermining financial advisers for 15 years now. Why has our Government, through ASIC, been aiding their cause by providing them with special regulatory protection? It ASIC corrupt? Do they have a deliberate, biased agenda against the private sector? These are serious questions which need to be answered because it is not good enough to simply imply they haven't got around to it yet.

For far too many years Industry Super Funds have been falsely promoted without restriction as some amazing socialist experiment in the betterment of retirement outcomes for their members and the general public.
The premise of lowest fees, no commissions or adviser fees, highest returns, only run to benefit members etc etc etc are simply promotional strategies to appeal to those who cannot be bothered or do not wish to engage in accurate analysis. In addition to all this is the potential breach of the Sole Purpose Test with the unauthorized allocation of millions of members retirement monies to sporting team branding opportunities and television and media advertising campaigns of which nearly every single one is designed to falsely slander the competition and to make retail funds appear to be unethical and not for the social good.
Well, it's not for the social good that multi millions of members retirement monies are channeled into the Unions coffers every year either without specific authorization from every single fund member prior to the Trustees deciding to committing funds. If Industry Super Funds are deemed public offer funds then there is no mandate whatsoever that compulsory financial support of a Union could be enforced upon members of a fund and impossible to justify that in any way at all these contributions satisfy Trustee responsibilities to enhance the retirement benefits of their members.
How on earth a Trustee can satisfy compliance requirements by handing over unauthorized member monies to an unrelated Union body simply because they know their socialist comrades at the Labor Party will back them all the way
is utterly unacceptable.
If Industry Super Funds want to play in the play ground, then they have to be equally subject to the rules of the play ground.
There is no doubt the fund advice that Industry Super Fund members receive when they phone their friendly fund advice hotline may well be fund specific, but when that develops into subjects such as what investment options are available to me?, who should I be nominating as me beneficiaries?, tell me about salary sacrifice contributions ?,
how much can I contribute to my account in a year ? etc etc.
How are these relatively common member questions addressed by adhering to the Best Interest Duty ?
If members are then referred to the fund's associated adviser service who will then charge advice fees at a market competitive rate, will those advisers recommend leaving the Industry Fund if they believe it would be in the member's best interest to do so?....I think not, otherwise the referrals may cease rather rapidly.
It is simply long overdue that ASIC now create a level playing field and focus and assess the real process behind the Industry Fund machine from the Trustee level down.

The shoe fits the other foot as well. What financial advisor in a bank would recommend a bank customer signing up for an industry fund instead of one of the bank's offerings? You are living in a glass house.

But you make a good argument for professional financial advisors independent of both retail and industry super funds.

It's pretty simple. Financial planners outside of the union funds follow the best interest duty obligations. The ALP carefully carved union funds from these obligations under the guise of general advice. The same union buddies who help fund the ALP. The shoe most certainly should fit on the other foot, and that is the point everyone is making. Union funds and their advisers want to continue to play by a different set of rules, and ASIC through their inaction has effectively said they are fine with this. Why? No one is arguing against best interest duty other than the unions. Why? Retail advisers do in fact recommend union funds under best interest duty, union advisers only ever recommend union funds. Why? And you talk about glass houses.

Once upon a time, I worked as a rep for one, and I absolutely did recommend industry funds when there was a reason to. It was called a reasonable basis of advice, followed by the best interests duty to which we ascribe to. I moved to a non-aligned firm from there, but to say that bank advisors would never recommend outside of that bank is a vast generalisation

Someone should remind Kell that ASIC does not stand for Australian Securities and Investment Communists.

Rather trite observation. No communist has headed the ASIC, just capitalists.

Even the deepest Socialist is going to be deemed a Capitalist, when viewed through communist glasses, hey comrade?

How often have we see or heard from a colleague that an ISF has cancelled a person's insurance when consolidating insurance only to find that they cannot replicate the same sums insured and same benefits because of a change in health.

I think it is a matter of ASIC fulfulling it's role. Quoting from the website - ASIC is about "Promoting investor and financial consumer trust and confidence". it would be very difficult for ASIC to show how it has promoted trust and confidence by never checking 30% of the market. If anything went wrong consumers might be able to mount a class action against ASIC.

The legal system has enough on its plate dealing with the current lot of bad advisors from the 'good side' of the tracks.

There is poor advice and it is ASIC's role to investigate this. However ASIC also has to promote integrity and confidence in the system. Would YOU stand up in court and say you looked after your client portfolio, but had never actually checked 30% of their portfolio? ASIC may be busy, but this is not an excuse, they have to fulfil their role in a professional manner.

Another very simple question for you " Hedware".
In 2010, HostPlus publicly severed it's financial sponsorship of the NRL Melbourne Storm because of the secretive and conflicted dealings regarding the breach of the salary cap. Based on a premise that a superannuation fund has a mandate to be first and foremost responsible for the ethical and compliant dealings of their member's retirement monies, it would not have have been a good look to continue supporting an organisation who had so seriously breached protocol.
However, HostPlus is currently the major sponsor of not only the Melbourne Storm, but also the AFL Gold Coast Suns.
HostPlus openly state they are a " huge supporter of Australian sport "and one of benefits of these partnerships is the opportunity for us to provide HostPlus members with free general admission tickets to selected sporting events".
So, the question is this "Hedware".............
Where in the Sole Purpose Test does it infer that it is acceptable for a superannuation fund to be pouring members monies into the financial support of sporting clubs (one of which seriously and publicly broke the rules of engagement) in return for the opportunity of a few free tickets and how does that strategy enhance the retirement incomes of the HostPlus member's?

I agree with you. HostPlus should be supporting the Sydney Swans and the Brumbies as I am sure many HostPlus members want free tickets to watch these two teams and not those other two.

But seriously, you are correct, particularly as we now find out that none of the top sport clubs pay tax but the salaries of their executives and players have risen above belief. They have risen so in comparison to average wages that have not grown and that is now starting to effect economic and business activities and growth, which in turn, affects investors, and in turn, financial advisors.

I would rather see the funds do a little more to fund companies in the innovative end of business particularly one that are in energy conservation, climate change mitigation, new materials, water management, etc (that is the things that affect our futures) as well as some social areas such as those that support NDIS, mental health development for our fellow citizens.

You seemed to overlook other issue and that being that banks, consultancies, accountancy firms, etc also hand their clients' funds over to sporting clubs, political parties, lobbyists and the like. You can't think that only the industry funds are doing this.

But that is the point, all the other organisations you mentioned have not made it their shtick being not-for-profit and all about the member. They charge a fee for service, what they do with their earnings is their business.

If Industry Funds advertised in the same way, that the Trustee was able to do whatever they wanted with the fees they charge then your argument would have merit.

Part of the problem is that Malcolm Turnbull is a moderate and he doesn't want to be seen playing hardball with the Industry Super Funds simply because his hold on power is tenuous at best.
Although Malcolm Turnbull made a vast amount of his money via the wealth factory at Goldman Sachs (about as far removed from a Socialist ideology as possible), the problem is that it's "Malcolm in the Middle" every time.
He wants to be friends with everyone and at this point he needs to demand and ensure ASIC are seen to be equally active and fair in their scrutiny across all sectors, otherwise ASIC may well be seen to have a conflict of interest in their process.

Disgraceful. How could you ignore one part of the advice chain to such a large degree. Especially since there are exemptions under the corporations law from the many consumer protection mechanisms. Shouldn't that sector be watched more? That would explain why their call centres can get away telling people the things they do. "Ahh Mr Consumer Forget about paying off the Home Mortgage, just add to our super fund."... and also "Don't add money to that superfund add it to ours"...and "Roll over that super fund and blow the anti detriment payment" and also " consolidate that super" therefore cancelling the insurance policy. Explains a few things.

it has now been so many years that this issue has been hidden I have almost given up raising it. I remind you, the Industry Funds made a grab for all funds to be rolled over to them on the basis of their advertisments (recomendations). They never offered advice. Just “Compare the Pair” and forget the rest. What about all the families who lost millions and millions of death and disability benefits because they were not advised. The widows, widowers and orphans have paid the price.
This can be proven by simply establishing who rolled over to Industry Funds and then passed way or became disabled. Then estabish name of the funds who paid the rollover funds over and then, establish what the members had forgone in risk benefits from their previous funds.
Then request the Inductry Funds to justify their acceptance of the rollovers without having offered advice.
How can this issue have been missed by our “Protectors” ?

What you say is true about some industry funds, half true about industry funds and not true about some industry funds.

But look at the other side of your story. Almost every edition of this august newsletter has a report of yet another retail institution employed financial advisor being fined, banned or imprisoned for negligence, malpractice or criminal acts. The clients of those advisors also lost their hard saved funds (although your 'millions and millions' is a bit exuberant). In part that's why there is a Royal Commission and yes industry funds are not going to miss out.

For you to take the one-sided line that you did means that you have not thought through the issues and facts sufficiently, which is not such a good approach for financial advisors.

Nevertheless, you do make a good case for professional (and educated) independent financial advisors.

That's because they have only investigated (ASIC) one part of the advice industry, the whole point of the article. The ISA planners process has not been looked at- you can't find bad apples in a particular orchard if you don't look there!

And yet another example of our Red Comrade Hedware stridently defending the ISA and aiming to twist the argument against banks. retail, and advisers. Even when the article and commentary here is clearly critical of ISA, who is their white puffed up creampie little champion? Richard Hedware of course!

About time ASIC looked at this. It's terribly slack with the plethora of advisers from industry funds that they've busted that they haven't raided these guys yet. Wake up ASIC!

I'm actually interested technically what they do/don't do with their franking credits? Anyone know for sure? They don't detail anything in the statements, it's all tied up in Net Earnings apparently. They say it's all in the unit price and partly why returns are higher, but its not transparent. Anyone know for sure?

Industry funds share the franking credits across everyone not the individual accounts which they do in Wrap accounts as the trusts of the super funds are different how they operate the funds.

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