The annual APRA superannuation performance test flags any underperforming super funds that fail to meet the benchmark. If a member is in an underperforming fund, they receive a letter suggesting they switch funds. From the fund’s perspective, they have to contact their members to explain and then if they fail for a second time, they are prohibited from taking new members until they pass.
Kirby Rappell, general manager of research at SuperRatings, said: “Licensees want to know what has failed before it does so that you’re no longer in the fund when it happens. If their advice process works or there is a way to monitor it, then the member would be already out of that product before it is identified as failing.
“You have a chicken and egg scenario around how does the licensee know ahead of time which funds will fail. Secondly, there are challenges around what is going to be tested, so they are wondering about the appropriate response to take. Do we take reasonable attempts to avoid things that aren’t performing or do we need to test everything?”
However, communication breakdowns between the licensee, the client, the regulator and the super fund can mean they are left in an awkward position if a fund that is on their approved product list fails the test.
It can also lead to issues if the licensee or adviser isn’t in the loop when it comes to meeting the best interest duty, if the adviser is unable to access performance results.
“If you’ve paid an adviser a couple of grand to provide advice and then you receive a letter informing you that your fund has failed, then that doesn’t cut it. That wouldn’t be a great discussion between the client and the adviser.
“We’re talking to licensees and dealer groups, and they tell us they are getting phone calls from clients saying they have received a letter about switching their fund, and the adviser only finds out from that client.”
With companies holding hundreds of fund options on their approved product lists and advisers feeling the pressure of regulation and compliance, it is no easy feat to keep up.
“The advice market has got more fragmented and there’s a lot more smaller groups so that burden of keeping up with the test is hard.
“You can’t assume every licensee is going to be able to recreate the test and they may have hundreds of funds on their APL, so trying to track them all is challenging.”
