FAAA chief executive Sarah Abood

The Financial Advice Association has pointed to flaws in the Your Future, Your Super test expansion to include Choice products and the impact it could have on advised clients.

Treasury launched the Superannuation Performance Test Regulations 2023 consultation in April which closed earlier this month.

The YFYS performance test uses $50,000 as the baseline account value for assessing administration fees, which is a component of the performance test calculation.

Given advised portfolios are likely to be $250,000 or above in size, platform providers optimising their pricing to be competitive at higher account sizes are at risk of being treated harshly by the performance test design, to the point where it may not be sustainable for platforms to offer some product types.

In a submission to the consultation, the FAAA said that while MySuper products generally have no adviser involvement, this is not the case for the recommendation of Choice products.

No impact analysis

The FAAA said there has been noanalysis undertaken for how this could impact advised clients, and the profession should be consulted during the rollout of the updated provisions and that ‘fail’ letters are first given to the member’s adviser.

It also suggested the wording to the letter should be improved to encourage members to discuss options with the adviser and that there may be good reasons to stay with the product, including tax and insurance considerations.

The association asked for an amendment to the performance test model to take into consideration the way master trust and wrap products function in regard to fee structures.

“Whilst we are not opposed to the introduction of performance testing for Choice products, it is critical that the regime considers the impact on financial advisers and their relationship with their clients,” the submission said.