Super funds are experiencing data gaps about their members, according to a joint APRA/ASIC review, as they are concerned collecting too much information could put them at risk of providing financial advice.
A recent joint review conducted by APRA and ASIC explored how fund trustees were implementing the Retirement Income Covenant (RIC) a year after its introduction. The review examined 15 trustees responsible for 16 funds with $862 billion and over 5 million members.
One particular area of concern is data gaps with 12 out of 15 licensees acknowledging they have data gaps. However, only four said they had plans to address these gaps.
Examples of data gaps included information about:
- Partner status and superannuation balance
- Financial assets outside of the RSE
- Home ownership
- Employment status and occupation type
- Pre-retirement income
- Retirement goals and planned retirement age
- Risk appetite
- Financial literacy
One reason trustees are reluctant to address these gaps is that they are concerned it will put them at risk of providing personal financial advice.
“Some RSE licensees expressed reluctance to collect additional data from members directly due to a concern that this could place them at risk of inadvertently providing personal financial advice.
“One RSE licensee took the view that understanding needs of their membership was not necessary as they stated that many of their members were likely to be receiving advice from a financial adviser.
“Collecting information on members, in and of itself, would not result in the provision of financial product advice. Rather, financial product advice involves a recommendation or statement of opinion (or a report of either of those things) that is intended to influence a person in making a decision about a financial product or could reasonably be regarded as being intended to have such an influence.”
The review recommends communication by trustees is critical if they want to avoid providing personal financial advice. Factual information, general advice and interactive tools can all be beneficial to members who actively seek information without the fund straying into personal financial advice, it said.
“RSE licensees seeking to avoid providing personal financial advice to their members should therefore focus on the way they communicate about financial products, particularly as the test for personal financial advice can be satisfied even in the absence of knowing a person’s objectives, financial circumstances and needs.
“Caution is required when communicating with members about products. RSE licensees need to ensure they comply with their personal advice obligations when making a product recommendation (whether explicit or implied). They should take particular care in situations when members are likely to consider that the RSE licensee has considered their personal circumstances. This might be avoided by providing only factual information to members in these communications about products, which is less likely to imply a recommendation.
“RSE licensees must also refrain from offering products or inviting a consumer to apply for a product in the course of unsolicited real-time interactions, such as outbound call campaigns. An alternative would be to use non-real-time channels, such as email or letters, to communicate information about specific products.”
APRA and ASIC also noted the Quality of Advice Review response which could see super funds providing financial advice in the future.
In its formal response to the Quality of Advice Review released in June, the government outlined a second stream of expanding access to retirement advice. If it progresses, this will see the restrictions on collective charging amended to allow super funds to provide more retirement advice and information to their members.
“We note that the Government has recently released its response to the Quality of Advice Review. This information report does not address the implications of future advice laws on the assistance that RSE licensees may provide as part of their retirement income strategies.
“This is a matter that RSE licensees will need to consider as legislative changes are made. Under the existing laws, there are still a number of actions that RSE licensees can take now to better assist members in or approaching retirement, some of which involve the provision of advice.”
So does this mean finally, that “holistic financial planning” is a nonstarter with respect to just “Superannuation”, the second biggest investment of an individual after the family home?
Or are we turning the clock back to trends that existed three decades ago – to treat all investments as separate single “financial products” and not as part of a holistic financial plan.
A Royal Commission is needed into the overall operation of Superannuation, the mandated industrial awards, transparency in accounting and the valuation of illiquid investment assets, and finally who actually benefits from the overall fees and charges, shareholders, industry unions or provide funding to facilitate political standpoint advertising?