ASIC has made clear funds will have to lift their game when it comes to service standards but will be left to navigate the contrasting expectations of having best in class service with low fees.
The regulator announced 34 recommendations for trustees to improve their services on Monday after a report reviewing 10 funds showed the true extent of the claims handling issues plaguing the industry.
ASIC Commissioner Simone Constant tells Professional Planner while some funds showed improvement the regulator will still hold their “feet to the fire”.
“We will be coming back to this, we will be making sure they’re doing what they say they’re doing,” Constant says.
The regulator’s report found a quarter of claims files had poor customer service including not answering phone calls or asking for duplicates of documents they had received, including death certificates.
“[The funds] need to get to grips with their business…and the cultural issues that have been holding them back,” Constant says.
“Service delivery is the area…where we’ve got real concerns about the industry and sustainability of its practices.”
ASIC’s oversight is part of a multi-year programme on member services broadly, which is currently targeting death benefits.
“This is two years’ worth of data, over a years’ worth of really close work and 34 recommendations,” Constant says.
“We’ve identified they’ve had good outcomes in managing funds under management in the accumulation phase. This is the first of many things we’re going to be looking at when it comes to member services, including the retirement phase, and we will keep on this.”
But funds will gain little empathy for how they are expected pay for improved services. As the past few years has seen pressure from APRA to keep fees low, this has meant less revenue to spend on services.
Constant believes, under the Best Financial Interests Duty that dictates all expenditure is in the interest of members, funds should be able to spend more on services without running afoul of regulatory expectations about where member money is spent, as well as meeting legislated service standards.
“We’re also calling for sustainable operations to support their footprint and their increasingly complicated operations,” Constant says.
“As the retirement waves continue, which is something Conexus [Financial, publisher of Professional Planner] looks closely at, and we get the more demanding members, rightly, who are in retirement phase…there’s only going to be more need for sustainable services.”
Constant is referring to research conducted by Conexus, in partnership with CoreData, that measured member services of funds, as well as the research done by The Conexus Institute* on improving retirement outcomes delivered by funds.
“If funds aren’t investing – it’s their choice how they set their fees and how they invest – and they need to see themselves as meeting commitments to their customers,” Constant says.
“If they fail to do that and they have points of failure then that’s our job to bring about the consequences.
“Intergenerational equity here would be terrible if today there were low fees being paid and advertised, then in five years the fund can’t meet its operational requirements and you get systemic fails, that’s all we’re concerned about here.”
ASIC has already commenced enforcement action against industry funds AustralianSuper and the troubled Cbus, and will continue to bring further action against other funds “where it’s warranted”, which was followed by the Albanese government announcing it would release a new set of member service standards.
“We’ve bought these two actions which we anticipate will create a deterrence effect as well as dealing with specific harm and conduct in those cases,” Constant says.
*The Conexus Institute is a not-for-profit think-tank philanthropically funded by Conexus Financial, publisher Professional Planner.
