Advisers brace for enquiries as 96 products fail APRA test

The Australian Prudential Regulation Authority (APRA) reported on Thursday that 96 trustee-directed products failed to meet the benchmarks of its 2023 superannuation performance test.

Among those that failed the newly expanded test is a “socially responsible” product run by the Australian Retirement Trust, three products offered by ClearView Retirement Plan, three by Crescent Wealth Superannuation Fund, and five by OneSuper.

However, the list was primarily dominated by products owned by Insignia Financial and AMP, accounting for 75 per cent of the failures, with offerings from four fund trustees under these companies’ ownership.

Responding to the test results, Insignia's Mark Oliver, head of superannuation and chief distribution officer, began by saying that some 5,000 members with approximately $350 million were affected, representing less than 1 per cent of its total members and assets.

“While this represents a small cohort of members, it is a disappointing outcome for them,” said Mr Oliver.

Speaking to ifa on Thursday, Mr Oliver explained that outside of sending a government-prescribed letter to its members, Insignia is prohibited from engaging in any other form of communication. As such, the firm is taking proactive measures to collaborate with advisers, assisting them in managing client requests effectively.

“Our focus has been also particularly on financial advisers and helping them navigate approaches from their clients in this regard,” Mr Oliver explained.

“We have a structured program of engaging with financial advisers,” he said.

In a statement given to ifa following APRA’s announcement, AMP said that all its default superannuation options and a majority of its trustee-directed products successfully met the criteria of the test. The options that did not meet the requirements were wrap investment options categorised as trustee-directed products under the test's expanded scope.

“In its current form, the test applies a ‘one size fits all’ methodology to these wrap investment options which, in some cases, are designed to offer different risk characteristics and performance outcomes than contemplated by the test," said Edwina Maloney, group executive, platforms at AMP.

“In many cases, investment options that haven’t met the test’s benchmark are legacy closed funds. Advisers and their clients have chosen to remain invested in these options because they have assessed that moving will not be in the member’s best financial interest due to capital gains tax, transaction costs, and potential loss of valuable insurance arrangements.”

Ms Maloney stressed that members could suffer financial detriment if they decide to move now as a result of the test, without first seeking advice first. She also expressed her viewpoint that the test has placed excessive strain on advisers who are already facing resource limitations.

“Amid a financial adviser shortage and the Quality of Advice Review aiming to simplify the advice process, advisers will be required to spend unnecessary time helping consumers understand these confusing outcomes, rather than helping more Australians,” she said.

Advisers have a crucial role

Financial Services Council’s (FSC) CEO Blake Briggs agreed that advisers hold a crucial role in managing the consequences of the test.

“The FSC supports measures that help superannuation consumers and their financial advisers choose appropriate superannuation options,” Mr Briggs said.

“The FSC encourages consumers to seek financial advice before making changes to their investment strategies following today’s performance results to ensure changes align with their individual circumstances and take into account tax implications.”

The FSC also urged the government to implement an effective product modernisation framework, one that allows members to move out of failed trustee-directed products without regulatory and tax barriers.

“Consumers in impacted products will be told their investment is underperforming, however, many will be unable to move out of that investment due to tax reasons. The government is encouraged to support consumers by offering capital gains tax rollover relief to facilitate the transition to contemporary investment options,” said Mr Briggs.

Speaking to ifa last month, Philip Anderson, general manager for transformation and policy and advocacy at the Financial Advice Association Australia (FAAA), said that once the test results are made public, advisers need to be on the front foot and proactively engage with their clients.

“Some clients will be oblivious to it, and I guess, so be it, but others will pay attention. This will get media coverage, so there will be a whole host of people who are very uncomfortable that they are in a product that has been deemed to have failed,” Mr Anderson told ifa.

He suggested advisers arrange meetings with impacted clients to debrief and talk about their options.

“Having that support from their adviser will help them to avoid making decisions on their own, which will ultimately lead to their disadvantage,” he said.

“What we’re saying is, pay attention to this. It’s not far off now. It’s going to be in front of us fairly shortly, so get on the front foot. Make sure that you’re communicating with your clients who are impacted. Make sure that you’re set up for it and that you’ve got access to data on which clients have which products so that you can respond quickly.”