ASIC is calling on superannuation trustees to renew efforts to protect members from unscrupulous operators amid evidence of inadequate oversight of advice fee deductions.
A newly published ASIC report outlines key findings from a review of the progress superannuation trustees have made in addressing deficiencies in their monitoring of fee deductions for the provision of financial advice.
The review found that these deficiencies — brought to light through ‘fees for no services’ cases heard by the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry — continue to pose risks and cause detriment to members.
ASIC recognises the importance of access to quality financial advice about superannuation, and acknowledges it is common for advice fees to be deducted from superannuation accounts. However, trustee vigilance can mitigate risks to members from unscrupulous operators, including cold calling businesses using high-pressure sales tactics leading to inappropriate superannuation switching advice— as flagged in our earlier release (refer 24-092MR).
From a sample of 10 superannuation trustees representing approximately eight million members, managing a combined $923 billion in assets (as of 30 June 2023), we found over a 12-month period:
- over $990 million in advice fees charged across more than 476,000 member accounts;
- three trustees reported not checking any advice documents on a risk or random basis;
- fee caps as high as $20,000 or 5% of a member’s balance were in place, with few trustees implementing controls to protect members with low balances;
- members of 70% of trustees were found with advice fee deductions exceeding $15,000;
- variability in onboarding and monitoring processes for financial advisers, including limited checks of ASIC’s registers by some.
“Super trustees are responsible for members’ money held within the fund. Effective trustee oversight practices can help mitigate risks and protect superannuation members from real financial harm over the long-term,” ASIC Commissioner Simone Constant said.
“Despite repeated calls for an uplift in practices from ASIC and APRA in joint letters issued in 2019 and 2021, our latest review shows continued deficiencies in trustee oversight of advice fee deductions by some trustees.”
Ms Constant continued, “ASIC is concerned about the potential impact on superannuation members, particularly amid evidence of balance erosion from fee deductions for advice originated by cold calling business models using questionable sales tactics that pressure members into switching superannuation funds.
"Superannuation trustees should have processes in place to detect and respond to suspicious activity.”
ASIC urges superannuation trustees to reassess their oversight processes and consider the following steps to strengthen member protections:
- reviewing the ways financial advice documents are sampled to identify unscrupulous advisers providing harmful advice
- objectively considering the caps on advice fee deductions, including by using objective criteria to assess the cost of advice to help trustees determine appropriate fee caps;
- enhancing adviser onboarding practices, including by vigilantly monitoring for financial advisers involved with cold calling businesses and using fact finds of advice licensees;
- regularly checking ASIC’s Financial Adviser Register for unexpected adviser movements that might indicate a problem, maintaining watchlists and monitoring patterns or irregularities in advice fee deductions, withdrawals of member consent and rollovers into the fund.
“Superannuation trustees can uphold member trust in their oversight by ensuring super balances are protected from unscrupulous operators” Ms Constant added.
“Along with our peer regulator, APRA, we urge trustees to review and strengthen their practices to help members achieve their retirement ambitions.”
“As the conduct regulator for the superannuation industry, ASIC will consider acting against trustees found to have breached their obligations to members."
REP 781 Review of superannuation trustee practices: Protecting members from harmful advice charges forms part of ASIC’s broader work to minimise member harm caused by cold calling business models using high-pressure sales tactics and online click-bait advertisements to lure consumers into receiving often inappropriate superannuation switching advice. ASIC will publish an Information Sheet in the coming weeks, which sets out how financial services laws apply to cold calling operators, financial advisers, and financial advice licensees.
Background
The Royal Commission into Misconduct in Banking, Superannuation and Financial Services (Royal Commission) highlighted cases where advice fees were charged over an extended period without adequate consent or oversight, leading to erosion of members’ balances.
To drive better practices, ASIC and APRA wrote to trustees on 10 April 2019 (2019 joint letter), about their obligations concerning oversight of fees charged to member accounts. Trustee reviews of their processes were expected to be substantially completed by 30 June 2019.
In response to the Royal Commission, new legislation was passed to limit the deduction of advice fees from superannuation accounts from July 2021.
ASIC and APRA outlined expectations on 30 June 2021 (2021 joint letter) following the new legislation and findings from the 2019 trustee reviews. Areas of weakness identified were trustees not conducting regular, proactive reviews of advice documents, and a lack of formal processes for checking financial adviser identification and qualifications.
At the date of this release, proposed law reform to amend s99FA of the Superannuation Industry (Supervision) Act 1993 is underway, including introducing an explicit requirement that the advice is wholly or partly about the member’s interest in the fund. The assurance arrangements referred to in the 2019 and 2021 letters which are discussed in this report, such as reviewing a sample of advice documents, remain of continued relevance. For trustees to be confident in the future that they are instituting robust procedures to help them comply with the law we encourage them to draw on the insights from this review.