An ASIC review has called out the risk to retirement outcomes for Australians, of holding their superannuation in persistently underperforming options, and called on super trustees, financial advisers, and financial advice licensees to more consistently focus on the performance of Choice super investment options.
As of September 2023, Choice products accounted for over $1.1 trillion in superannuation savings held by Australians across 7.5 million member accounts. Many Australians hold these products based on the recommendation of a financial adviser.
ASIC Commissioner Simone Constant said the results of ASIC’s review were concerning.
‘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,’ Ms Constant said.
ASIC’s review found that often there was insufficient emphasis on and a lack of transparency about Choice investment options that failed to meet performance expectations. There was little evidence of trustees communicating to members about investment option performance in a targeted manner, and financial advisers were not always addressing underperformance where relevant.
‘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,’ Ms Constant said.
ASIC’s review confirmed trustees, advice licensees, and advisers should undertake performance-focussed due diligence before offering investment options to members, approving options for use by advisers or recommending them to members. They also need to take care not to fail in their duties by over-relying on each other or external rating agencies when performing their roles.
ASIC expects trustees to:
prioritise investment performance throughout the product lifecycle;
have systems in place to detect and address persistent underperformance;
regularly monitor investment option performance against return objectives and benchmarks;
ensure they have sufficient capacity to manage investment options, including clear and comprehensive policies, resources, and data reporting arrangements;
effectively communicate with members about performance, which could include targeted communications and comparisons of actual returns to return objectives; and
act in response to sustained underperformance to minimise member risks.
Advisers 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.
Advice licensees should have 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.
Ms Constant said more than three million Australians are expected to retire in the coming decade.
‘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.
‘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.
Following the review, ASIC is considering a range of regulatory responses where there was an indication clients were at risk of detriment as a result of personal advice. This includes 11 files where ASIC 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% and 100% of their superannuation balances in an underperforming option.
ASIC will continue to work closely with APRA to drive better investment governance practices in the superannuation industry, and where appropriate, use regulatory powers where trustees are not meeting their obligations.
