ASIC has called out the super industry for lacking oversight, amid criticism from the advice sector over rules for fee deductions from super accounts.
In a media release on Thursday morning the regulator said it is “calling on superannuation trustees to renew efforts to protect members from unscrupulous operators” after a review found evidence of deficiencies.
While trustees have argued for maintaining member safeguards via consultation on the Delivering Better Financial Outcomes bill, ASIC Report 781, ‘Review of superannuation trustee practices: Protecting members from harmful advice charges’ found a sample of trustees were often not checking advice closely enough, or at all.
The report focused on how trustees met expectations from ASIC and APRA over joint letters sent in 2019 and 2021 regarding the oversight of fee deductions from member accounts.
The review covered trustees for three profit-for-member funds and seven retail funds over the 12 months up to the end of March. These funds had 476,452 member accounts and paid $990.4 million in advice fees to advisers from 1803 licensees.
Three out of seven trustees that did check the advice given to members that found instances of fees for no service, and only 50 per cent of those instances were from random sample checks.
Trustees were asked to describe the outcomes of their checks. Out of 1526 samples given to ASIC, 94 per cent reported no adverse findings, 1 per cent found no financial service was provided for the fees charged, while 5 per cent identified “other” adverse findings.
Four trustees did not asses any of the advisers or licensees that provided advice to members as being “unsuitable” to deliver the service.
Trustees and industry associations have supported the DBFO requirement to codify existing guidance on supervising advice fee deductions, but the bill has faced criticism from the advice sector which argues that, at worst, trustees could misuse their supervisory mandate to deny members the right to pay for advice from their superannuation accounts.
At the Financial Advice Association Roadshow last week, ASIC Commissioner Alan Kirkland said trustees are not currently required to check every piece of advice members receive and that will not change if the legislation becomes law, a view re-iterated in the report. Kirkland will be speaking at the Professional Planner Licensee Summit next month on 18-19 June.
Of the seven trustees that did conduct checks onto the advice given to members, only two checked more than 50 advice documents, and three trustees did not report conducting any checks of advice documents in a 12-month period.
In its submission to the Senate Economics Committee review of the DBFO bill, the Financial Advice Association has recommended, as one potential solution, that trustees stick with a risk-based approach to checking advice. Of the checks that were reported to ASIC, 82 per cent originated from risk-based prompts, while the rest were randomly sampled.
When it came to risk-based factors that triggered a check, the ASIC report found trustees relied on watchlists of advisers or licensees that were either new or subject to complaints; high fees above trustee fee caps; variations in the frequency or size of advice fee deductions; failures by licensees or advisers to provide attestations; or member accounts identified with adviser inactivity.
Form and function
Despite finding the majority of sampled advice had no issues, the report recommended trustees should be “proactive” and conduct regular sampling of advice documents.
“Arrangements for trustees to obtain advice documents, and other relevant information, must be effective, efficient and operational,” the report said.
“Trustees should review their policies and processes, ensuring that the risk-based factors are suitable and the level of checks appropriate, and consider random sampling to complement their risk-based checks.”
The review also recommended trustees avoid over-reliance on member consent forms.
“To implement robust controls, trustees should combine checks of member consent forms with further oversight practices, in particular proactive checks of a sample of advice documents,” the review said.
“In these checks, trustees need not determine the quality, value or appropriateness of the advice provided to their members. Rather, the checks can help to confirm provision of a financial service to the member and that the service complies with the sole purpose test.”
ASIC asked trustees how many members had had actively withdrawn their consent for ongoing fees during the review period and found “alarmingly” that three trustees were unable to provide this information.
Caps and checks
The review also recommended trustees review fee caps and whether they were structured appropriately.
Fee caps were reported as high as $20,000, or 5 per cent of a members’ balance, with few trustees having controls on fees for low-balance members.
Percentage-based fee caps ranged from 2.2 per cent to 5 per cent, while flat-dollar fee caps ranged from $1500 to $20,000.
Within the data period, the review found 328 unique advice fee deduction arrangements that exceeded $15,000. This occurred for seven out of 10 of the trustees.
“Trustees with high fee caps, particularly percentage-based fee caps without a fee ceiling, or easily permissible exceptions processes, may attract unscrupulous advisers and licensees, including those associated with cold calling operators seeking higher advice fees,” the report said.
The review also raised concerns with how infrequently trustees used the ASIC Financial Adviser Register to crosscheck advisers.
“Checks by trustees against the Financial Advisers Register varied, from weekly to annually, or ad-hoc,” the review said.
“Trustees must be vigilant, as advisers with poor conduct, including those using cold calling operators, may move rapidly between licensees.”
However, the regulator said checking ASIC registers was not enough to greenlight onboarding advisers.
“Better practices involved trustees engaging with licensees to understand their business, including their processes for generating advice documents and policies on complaints and managing conflicts of interest,” the review said.
ASIC criticised an over-reliance by trustees that relied on attestations from advisers and even members that the advice met the sole purpose test.
Included in the review were AustralianSuper, Aware Super, Australian Retirement Trust, Praemium SMA Superanuation Fund, AMG Super, HUB24 Super Fund, IOOF Portfolio Service Superannuation Fund, Macquarie Superannuation Plan, AMP’s Wealth Personal Superannuation and Pension Fund, and Netwealth Superannuation Master Fund.
Here lies the crux of the problem, “the review recommended trustees avoid over-reliance on member consent forms.”
If member consent forms state, I have received financial advice on my superannuation and direct payment of $x to be made, then that should be the end of the matter.
But Stephen Jones and the government don’t trust Australian adults to be capable ; they consider the people to be cretins below them who need the government to help tie their shoes.
It is a sad state of affairs and perfectly illustrates the Nanny State and red-tape that is killing productivity.