ASIC outlines crackdown on super advice

The Australian Securities and Investments Commission (ASIC) has signalled a tough approach to superannuation fund underperformance, suggesting that it may be a key indicator of misconduct.

The regulator has also pointed to close scrutiny of advice in superannuation and the erosion of balances resulting from members paying inappropriate or excessive advice fees from superannuation accounts.

It also pointed to a current project looking at 25 superannuation funds involving testing the quality of advice provided.

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ASIC chairman, James Shipton told today’s Financial Services Council Leaders Forum in Sydney that the regulator was committed to taking action against trustee misconduct and that it would be looking particularly at trustee behaviour that caused monetary loss to members, financial exclusion, loss of market integrity and confidence and behaviour that undermines competition.

He said that ASIC was also putting trustees on notice where there is persistent underperformance such as:

  • Consumers expect super trustees to act in their best interests to improve retirement incomes – consistent underperformers are clearly not doing enough;
  • While underperformance is not illegal, it is frequently caused by conduct that does breach the law e.g. conflicts of interest, failure to act in members’ best interests, or lack of diligence by trustees; and
  • ASIC will consider persistent underperformance as a key indicator and red flag to help target our work to identify misconduct. 

On the question of advice fees, Shipton said ASIC expected trustees to have reviewed their governance and assurance arrangements for fees charged to super accounts and said that ASIC was working on a project examining market structure and conflicts in relation to advice by superannuation funds.

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Over what time frame? will they be measuring absolute returns or risk adjusted returns? If risk adjusted on what basis? Esp with unlisted assets.

Like one CIO of an industry fund said recently. Our unlisted assets provide stability so we can allocate our risk budget to other places?

Seriously?? This from a CIO!!!

ASIC don’t even understand the question let alone being able to decipher an answer.

What is this beef against unlisted assets? Remember unlisted property trusts? They were the only way to indirectly invest in property some time ago and they still exist. You can invest in many types of securities via unlisted vehicles. Most of the wealthy use this approach. It’s bog standard in the US. Even Peter Costello of Future Fund uses unlisted funds as a stabilizer of volatility and long run investment.

Hopefully the new education requirements for financial advisors will include a subject or two on unlisted investment vehicles to bring untrained financial advisors into the real world.

As usual, if it is a good investment on appropriate metrics and liquidity risks are considered and managed, why wouldn't you want to invest in an unlisted manner?
As to valuation, that can be regulated and enforced as to frequency and audited as required.
CFA course has a decent amount of reading on the issue.

because the problem is GD, they aren't necessarily being invested in due to good metrics and liquidity risks aren't being considered closely enough because of conflicts of interest with related parties. Otherwise you thesis is correct. However, there is also no clear research on the fact that a illiquidity risk premium even exists. Also, it does not smooth volatility, it defers volatility. Take the case of a unlisted property, with a lease not rolling over for say 3 years, it's valued on today's lease, not the one it may have to sign in a recession in 3 years at a reduced rental, i.e. reduced valuation. Mark to market forward looks to these events i.e. takes the medicine sooner. And then, talking of liquidity - if a punter invests in say Hostplus and finds that 15% Unlisted is categorised defensive but he's looking at the defensive as his liquid component for drawdown, well he's out by a long way and under pressure in a prolonged market downturn.

The underlying reason it provides stability is that when the actual value of the unlisted asset depreciates, the trustee does not depreciate the value of the asset. If retail members knew that they were buying units in a fund at a higher price than the underlying asset, would they call that ethical? The wealthy and the Future Fund are not retail clients.

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. See Google Hedware.

Conflict of interest. David Marin-Guzman, The Australia n Financial Review, yesterday:
A former executive at Australian-Super has accused top officials at the country’s largest superannuation fund of pressuring him to funnel investment into a union-linked property trust despite conflicts of interest … (Jack) McGougan claims he was forced out of his $500,000-a-year job for opposing moves by chief investment officer Mark Delaney and director Brian Daley to invest in industry-fund controlled developer ISPT … When he raised concerns over the fund’s poor management of conflicts of interest in relation to ISPT, AustralianSuper chief executive Ian Silk told him “you have to drop this” … ISPT is an unlisted property fund and developer set up in 1994 by former ACTU assistant secretary Garry Weaven and co-founded by AustralianSuper.
Conflict of interest? www.actu.
ACTU thanks all our sponsors and partners for supporting the 2018 ACTU Congress in Brisbane 17 and 18 July 2018 … AustralianSuper … Care Super … Cbus … First State Super … Industry Super Australia …

Perhaps I didn't explain it clearly, I have nothing against unlisted assets...I use them!!

What the CIO was saying was that as unlisted assets effectively had "no volatility" (at least none that is measured which is his key error) they use their risk (volatility) budget for other areas. ie. invest in greater quantities of equities as the "risk" allocated to unlisted assets is zero!!!! Really???

This is how you get a so called "balanced" fund with 80-90% growth assets for which the industry funds are famous. And the members of the fund are carrying more risk than they realise.

Further they only generally provide AA as at June 30, just after everyone has just rushed contributions. This of course allows them to run much higher AA's intra year and not report them.


My God isn't the consumer liable for his/her own self interest?

Well they better start scrutinising Industry Funds then.... Sponsorship, Qantas frequent flyer points, board fees funnelling to unions, etc etc.

Yes they should XY, but the "adviser" remains securely in their sights as these remain the soft targets that provide "quick results" sought, via a path of least resistance.

ASIC is a joke, they exclude industry funds and the conflicts rampant there, as if they are some form of sacred cow and yet target FP's as if we are all simply criminals (like the unions were found to be at their royal commission that had zero repercussions for them).

This is pathetic, unless they also ban intrafund advice and fee sharing in unionised funds, then ASIC have no right to affect agreements between clients and their planning firms, regardless of where the trustees may sit in this.

This is yet another targeted attempt by the lefties who have infiltrated every single aspect of the system, to get rid of their threat to the billion dollar industry fund gravy train.

Intra-fund advice is unethical and is no different to commissions and fee-for-no-service but ASIC has an agenda to protect the industry funds at all costs!!! Once only industry fund intra-fund advice is left because all the FPs have been forced out then ASIC will claim a great moral victory but the actual truth will be very different.

Nazi Germany's crackdown all seemed harmless and without an agenda in the early days as well, and yet they went rabid eliminating their target demographic. If you are an FP you have a target on your back, and as per other stories in this publication, it already has had a toll not only on businesses and advisers leaving, but also in deaths.

When someone cites nazi Germany in a discussion about financial services you know they have lost the plot, or never knew when where to find it.

The Nazi's, in the end did not win. History is very important Bearstow.

I understand your upset about the changes but you and your mate being Totally insensitive. pathetic to even compare the two . Try in the public sphere outside of this echo chamber and you will get pillared

Wondered how long until the bleeding hearts and politically correct police showed up. You do realise that you commenting actually adds and endorses to their comment? But I am betting that you just couldn't help yourself and you believe you're some champion of the people, too funny.

No bleeding heart here, that’s why I have little sympathy for planners who didn’t plan ahead knowing commissions would eventually be removed (they had 5 years notice!). Lastly, not PC, or supporting a comment by calling out a stupid comparison. Again, if you care to make your comparison public then I’ll wont have a need to comment, but you are well aware of what the reaction will be.

Disappointed that you didn’t mention ‘reds under the beds’.

Clearly your ability to read and make lateral comparisons is extremely limited. I also note you generally comment on the side of industry funds. You wouldn't be old mate hedware under another name would you? Also betting you haven't talked to any planners out there who are facing severe implications under the new regime, or if you have, you're just as cold hearted and happy they're being rounded up and put on trains, to continue his analogy.

It’s my ability think laterally which means There is no comparison to be found. Money for doing nothing had to end sooner or later. And no I’m not in the industry funds side. The fact is the big planner made a fortune with barely and education. If they didn’t plan wisely for the future that’s their fault. Not like you to didn’t have warning. Lastly, no, I know hundred 100 or so planners and none are going under, except ones caught by asic. Again not one of you has the guts to make your comparison publicly...

Oh ho... looks like another change coming..

All that is needed by ASIC is to regulate that audited financial statements be produced by all RSE's that can confirm or deny if ALL members are subsidising the advice provided to a FEW members - as per Section 99F:

Cost of financial product advice
(1) The trustee or the trustees of a regulated superannuation fund must not directly or indirectly pass the cost of providing financial product advice in relation to a member of the fund (the subject member ) on to any other member of the fund.

ASIC and underperforming funds - before they launch into fund performance - maybe they should educate themselves on what disclosure of risk is about. Correct - we don't know what industry funds are, what they invest in or the risks they take with money. Retail funds on the other hand by definition must have a coherent discussion with the client to confirm risk that is measurable - the concept of a standard deviation - heavens forbid. If a client doesn't want something risky - retail funds arent at liberty to have the clients money in risky investments. Because we all know that high returns necessarily must be accompanied by high risk. Something most punters are aware of - but not so the ISN funds who rabbit on about performance. If you want to see how that plays out, look at MTAA super and how they performed after the GFC - losses of $850million - not so much a work in the press. Can we have at least have ASIC & or APRA act like grown ups and ensure we have standard risk measures?

At last ASIC is doing something to support and underpin Australians and their investments in superannuation.

This can only be good for the professional financial advisors who cop unfair blame for poorly performing and mal administered superannuation funds be they retail or industry funds. As recent research showed, these scandals bought to light by the Royal Commission has damaged the reputation of financial advisors which will take time to recover.

And again, muppet.

Tinker, tailor, soldier, spy, rich man, poor man, beggar man, theif.

We know what the financial industry is and it ain’t poor men.

The pigs run the farm and it’s time to make bacon.

Make cannibalism great again!
Bon appetite!

ASIC will be going from house to house, office to office rounding up all the planners, intermediaries, taking away their business and livelihood, now been given the authority to name (guilty or innocent does not matter) and drag them behind the new trams. What a new world we live in today. Allow governments to make the rules and legislation so complicated nobody left to advise, and when the consumer makes an error or misinterprets, the call out the big dog with tax bite.

ASIC knows a thing or two about underperformance all right!
all this will be is pressure on trustees to hassle advisers who charged fees. Well licensees to prove and justify each client is serviced..which is fine in principal considering fee for no service, but that is done and fixed, now it will be a massive drain on resources of licensees and is a nail in the coffin of everyone but Industry funds...

The Royal Commission found some trustees where not acting in the interests of their beneficiaries but for their bank, financial, institution, etc employer. Basically they were breaking common law and statute law applying to duties of trustees.

Moreover those trustees were not acting in the best interests of financial planners. Just think about it. Bad trustees were not maximizing returns for funds’ beneficiaries but it was financial planners who were the ones accused of poor performance and they were the ones ending up with damaged reputations.

Both representative bodies for financial planners are at fault for not having enforceable standards and bought this new environment upon all. And financial planners went along with all this and have ended up with self inflicted costs.

The recent ASIC survey showed how much the public distrusts the financial planning industry. ASIC was kind in not showing where financial planners ranked against other occupations but in the mind of the public financial planners are probably down with politicians and used car salesmen.

Ah, acting for their employer's interests, you mean like industry funds do all the time at every level being conflicted?

Like I said, it been cleaned up now. I acknowledge it was a problem.
In regards the professional bodies - that hard, because FPs see them as an advocacy group, a bit like licensees. It’s the regulators responsibility, and lesser so the licensee.

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