Regulatory response looms as ASIC finds deficiencies in adviser oversight of super performance

Financial advisers are among a group of stakeholders the corporate regulator has called out in its latest statement following a review into the role super trustees, advisers and their licensees play in influencing the investment options in member super portfolios.

The Australian Securities and Investments Commission (ASIC) said on Wednesday that the results of the review were concerning. Namely, it found that advisers were not always addressing underperformance where relevant.

Having reviewed 88 advice files across 26 advice licensees, focusing on advice provided about nine options that all persistently failed to meet performance expectations, the regulator said it is considering a “range of regulatory responses” where the results of the review were concerning.

This, it said, includes 11 files where it 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 per cent and 100 per cent of their superannuation balances in an underperforming option, ASIC said.

Commenting on the findings, ASIC commissioner Simone Constant said: “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.

“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.”

The regulator said its review confirmed trustees, advice licensees, and advisers should undertake performance-focused due diligence before offering investment options to members, approving options for use by advisers or recommending them to members.

Moreover, the regulator cautioned them to “take care” to ensure they do not fail in their duties by over-relying on each other or external rating agencies when performing their roles.

ASIC also detailed its expectation of advisers, noting that they 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.

Regarding advice licensees, it said they should adopt “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.

“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,” said Ms Constant.

“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.

ASIC’s review focused on advice related to underperforming options, not overall compliance with the best interests duty and related obligations.