APRA and ASIC have written to all large superannuation funds about fees for no service, asking them to review how fees are deducted from member accounts and paid to third parties – including financial advisers.
The regulators pointed to cases of fees for no service examined by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
“Separately, we have identified a range of industry practices in relation to trustee oversight, many of which fall below the standard we expect,” says the joint letter.
“A number of these matters are the subject of enforcement investigations or actions. This raises concerns about some trustees’ risk governance, capabilities and culture, as well as their ability to appropriately manage conflicts of interest.”
“All trustees must have in place strong governance, risk management and oversight processes to ensure that only authorised and appropriate fees and other charges are deducted from members’ superannuation accounts,” warned the regulators.
APRA and ASIC expect all large super fund trustees to be reviewing the “robustness” of their arrangements for charging fees to member accounts, and “address any identified areas for improvement in a timely manner”.
“We expect these reviews to be substantially completed by 30 June 2019.”
The letter lists four issues around the deduction of financial advice fees that super fund trustees need to consider:
- Are the deductions explicitly authorised by members? Are the deductions consistent with the authorisations and disclosures made to members?
- Have services been provided?
- Is the deduction consistent with the sole purpose test?
- Is the deduction in the best interests of members?
“We emphasise that care needs to be taken to ensure that controls do not place undue reliance on assurances or attestations from financial advisers or other third parties given the potential personal conflict of interest that these parties might have in the continuation of fee payments.”
“We have seen several circumstances in which trustees have instituted arrangements that promote financial advisers acting as a de facto distribution mechanism for funds with an understanding that the financial advisor may negotiate fees of a significant value to be deducted from the member’s account. This can create additional risks, which will increase expectations about the kind of oversight practices a trustee should be adopting.”