ASIC puts licensees on notice over super performance oversight

21 February 2024
| By Maja Garaca Djurdjevic |
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ASIC has issued a warning to advisers and their licensees after identifying deficiencies in their oversight of Choice super performance.

Financial advisers are among a group of stakeholders that the corporate regulator has called out in its latest statement following a review of the role superannuation trustees, advisers and their licensees play in influencing the investment options in member super portfolios.

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,” 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 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. 

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Submitted by Chris Cornish on Wed, 2024-02-21 15:07

"Past performance is no guarantee of future results" is something ASIC are always keen to say.
Yet when it comes to them, they expect past results to now be written down in the ever expanding SOA (which I thought they were claiming could be simplified).
I am quite happy to explain my recommendations to a client, or some complaints tribunal. But to address any historic underperformance for each investment recommendation in an SOA is more time consuming, pointless bureaucracy.
I'd go on to say, that if this requirement stands, then advisers should also be compelled to explain why they think any out performing investment will continue to out-perform, when historically we know that a fund manager doesn't continually out-perform.

Submitted by Retired AFSL P… on Wed, 2024-02-21 16:14

ASIC is now ignorantly venturing into the world of short-termism. Advisers are generally giving advice on a long term basis, rather than chopping and changing like those poor US "Day Traders"

Submitted by Pot on Wed, 2024-02-21 17:20

Its underperformance as using a flawed system to assess this fact.

Submitted by JOHN GILLIES on Thu, 2024-02-22 17:08

What does underperformance mean?Is it 8%pa 10%pa 1% monthly.YOu could try walking up to the lotto koisk and buying the winning ticket, other wise you are dismisses.
Passed performance?????????? says ASIC to the >??????? JG

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