51% of advice from super funds may not have complied with law, ASIC finds

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A review of super fund advice files by ASIC has found that 51% don’t demonstrate compliance with the best interest duty and related obligations.

ASIC has surveyed 25 superannuation funds about how they give advice to members. As part of this, the regulator found that 51% of financial advice files reviewed – which excluded general advice – didn’t demonstrate compliance with the best interest duty and related obligations. 49% of files demonstrated “full compliance”.

Despite this, ASIC said that “overall, we found that the quality of personal advice provided to members was generally appropriate”.

36% of all the files didn’t demonstrate full compliance with best interest duty, but also didn’t indicate the member was at risk of “financial or non-financial detriment” due to the advice, according to ASIC. But in 15% of files there was indications of detriment to members. The files excluded general advice, which represents 75% of the advice super funds give members, instead covering intra-fund, scaled, and comprehensive advice.

“The main indicator of non-financial detriment was due to the advice provider not addressing the member’s advice needs. For example, a member sought advice on investment choice and contributions. However, the advice provider scoped the advice to only cover investment choice and the member received no advice on contributions,” said ASIC, in REP 639 Financial advice by superannuation funds.

More specifically, ASIC also found (with some overlap) that 34% of the files did not “did not demonstrate compliance with the requirement to provide appropriate advice”, 27% of files did not demonstrate the interest of the member had been prioritised, and 20% of files involving the replacement of a product had “inadequate or absent” information about the product replacement.

ASIC Commissioner Danielle Press said: “We recognise that inappropriate superannuation advice can have a significant detrimental impact on members’ future financial security. Where we did see some risk of detriment, we will be following up with the advice provider and requiring that they review and remediate the affected member.”

Advice providers employed by the fund had the highest ‘overall compliance rate’, of 57%, compared to 47% for advice providers employers by a related party, and 46% for third-party advice providers.

In part of its advice on how to improve compliance, ASIC says that super funds “cannot assume” that outsourcing advice to a licensed advice provider means the advice will be given appropriately.

In terms of the type of advice, both ‘intra-fund’ and ‘scaled’ advice had an overall compliance rate of 56%, compared to only 43% for ‘comprehensive’ advice.

The survey involved 11 retail super funds, 10 industry funds, and two each of corporate and public sector funds. But ASIC has not released a breakdown of the compliance of advice by fund type.

Press said: “I know there will be general interest in whether retail or industry funds provided better quality advice. We found the quality of advice to be similar across retail and industry funds.”

“Due to the different sample sizes we used in our work however, it is not possible to properly compare the overall quality of advice based on all four fund types, and our findings are presented on an aggregate basis.”

“We will continue to monitor developments in advice services offered by funds through our regular engagement with trustees and take action as required.”

ASIC has previously found that 75% of advice from the big four banks and AMP to switch to one of their in-house super funds was non-compliant.

Room for improvement on advice: AIST

The Australian Institute of Superannuation Trustees (AIST) CEO Eva Scheerlinck said, following the release of the ASIC report, that there was always room for improvement.

“Clearly, there is still room for super funds to improve both the quality of advice they are providing as well as how this advice is delivered to their members.”

“Super funds play a vital role in providing cost-effective financial advice to members and its incumbent on them to do this in a way that is fully compliant with the regulatory requirements and, most importantly, in members’ best interests. Given that this report also suggests many super funds are expanding their advice offerings and moving towards more digital advice, compliance must continue to be prioritised.”

This article has been updated since publication with the comments by AIST.

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