ASIC questions value of default super advertising

The Australian Securities and Investments Commission (ASIC) has told the Royal Commission that there are limits to the usefulness of advertising around default superannuation products.

In its submission responding to the superannuation hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, ASIC said that while it recognised that advertising could help drive competition and better market outcomes, it had its limitations.

“Advertising, if it works well, can prompt consumers to constructively consider the appropriateness of their current financial product. This includes advertising by super trustees,” the regulator’s submission said. “However, it should be noted that there is a limit to the utility of advertising when consumers are defaulted into a compulsory product.”

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At the same time, the ASIC submission suggested that the activities of industry fund HostPlus has proven that the so-called “no employer kick-back rule” within the Superannuation Industry (Supervision) Act was ineffective.

Referring to evidence to the Royal Commission that HostPlus had entertained employers to corporate hospitality at the Australian Tennis Open, ASIC said the issue “evidences that section 68A is ineffective”.

“In that case study, despite significant expenditure from fund assets for the benefit of employers there was no breach of the section,” the ASIC submission said. “This was because the inducement did not meet one of the requirements of s68A, namely, it was not ‘on condition that’ one or more of the employees will be or will apply or agree to be members of the fund.”

The regulator suggested that s68 A(1) be rewritten to prohibit inducements that could be reasonably expected to affect a person’s choice of default fund.

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Thanks Mike, hopefully all that product advice that Scott Pape has has providing without any form of advice document isn't impacted negatively by this. Scott has told everyone over and over again to invest in Host Plus Balanced fund as it is cheap and un-conflicted. Of course he doesn't have a 'Best Interests Duty' or any even a 'Duty of Care' to actually know the product and its appropriateness for the clients he is recommending use it because it 'was' performing so well? Unfortunately a fund with 92% of its holdings in growth assets (allowing for the cleverly rebadged 'defensive property assets' which apparently behave like term deposits) is not really balanced at all. Maybe appropriate for the average Hostplus investor aged 27 but good luck explaining the cliff it falls off when markets correct properly, to a retiree. When compared to other growth options its performance is in market though not anything to write home about. Oh and it isn't cheap - actually more expensive than most of its competitors in growth options and a lot more expensive than true to label, balanced options.
Now we find it is also guilty of providing conflicted remuneration to employers to get them to use this relatively expensive option.
As funds go, it can be a a good option for young clients with a long investment horizon but it is one of many and arguably not a stand out and with 92% growth assets, it will be a wild ride!

I agree and I'd be interested in Mike's view as a journalist on why journalists, including the Wealth editor of the Australian in every second column is able to recommend an investment product. Last week it was specific market neutral equities funds. Is there any debate about ethics amongst the journalistic profession? Are there any submissions to the RC about this. It's been going on for 20 years unchecked and it does clearly influence people.

About time, bu not critical enough. Hedware, sure you will come up with some valid reason in defending the indefensible ISA practices?

If one wants to see the regulators squirm, may I suggest one watches one of the regulator's reactions at the Royal Commission when asked who and what they regulate. Even though I agree with the sentiment, what does this have to do with ASIC. Surely, this should be coming from APRA. Do these regulators actually know what is going on and who they should be watching.

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