ASIC flags licensees’ role in super underperformance oversight
ASIC has shared further details on the role of licensees in preventing deficiencies in the oversight of superannuation fund performance.
Last week, the regulator issued a warning to advice licensees, trustees and financial advisers around deficiencies in influencing the investment options in member super portfolios.
In its broader report, ASIC detailed findings of 21 advice licensees and their approved product lists (APL) and approval processes, as well as their consideration of underperforming options between January 2018 and March 2023.
From the APL process review, 17 of 21 advice licensees’ responses indicated that their product review and approval policies and processes considered external product research. Most of these licensees considered external research ratings as a substantial factor in decision-making. All of them appeared to consider research from one of two specific research houses, but some also considered ratings from one or more other research houses.
It flagged six licensees appeared to base their product approvals solely on the availability of options within certain superannuation choice products or a minimum external product research rating, without records of further research or consideration.
ASIC stated there were limitations of ratings by research houses to check on underperformance as performance is not necessarily given a substantial weighting in their rating, and only a few were rated below neutral. Generally, a neutral rating was applied when conviction was low but the fund was not yet on its watch list, or when it was less competitive than other options.
When it came to a fund’s underperformance, two of the 21 advice licensees changed the internal rating for the underperforming option on their APL from ‘approved’ to ‘hold’ or removed the option from the APL altogether.
A further seven advice licensees indicated that historical performance of the underperforming option was recorded and noted by the advice licensee during the same period. Of these, four advice licensees explicitly identified the option as underperforming and recorded commentary about the underperformance and why the option continued to be approved for use by advisers despite the underperformance.
Steps for licensees to take include:
- Advice licensees should ensure that their advisers are detecting and addressing underperforming options held by their clients.
- Advice licensees should treat performance as a primary consideration with rigorous processes to detect underperforming options that have been approved for use by advisers and address these in a timely manner. They may include communicating with advisers, restricting the circumstances in which the option might be recommended, or removing the option from approved product lists.
- Advice licensees are expected to ensure records are kept of personal advice, the inquiries an adviser makes into the client’s relevant circumstances and their investigation and assessment of the financial products they are advising on.
AUTHOR
Laura Dew
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So performance must be the main consideration, ok then pray tell ASIC with your magic crystal ball which funds will outperform some years but underperform others? Are we to use your foresight which you must have to pick shares for clients too? You just buy the ones that are outperforming? Then if they don't outperform, you jump onto the next one? So so it goes? Really???? Oh asic your ivory tower is crumbling , you are grasping at straws to be relevant now.
Here's the thing ASIC most of you are washed up public servants that have never actually invested money for a client, we actually know more than you do. So stop telling us how to suck eggs. I'm not paying my fees so you can spout this mumble jumbo , do your core role.