ASIC flags trustees’ role in advising on underperforming Choice products

ASIC has issued a warning to super trustees regarding the underperformance of Choice super products.

Super trustees are among a group of stakeholders the corporate regulator has called out in its latest statement following a review into the role super trustees, advisers, and their licensees play in influencing the investment options in member super portfolios.

ASIC’s review considered the focus on performance, as investment in persistently underperforming choice products “adversely impacts” member retirement outcomes.

The regulator said on Wednesday that the results of the review were concerning.

Namely, among findings relating to failure on behalf of advisers and their licensees, the regulator said it found “little evidence” of trustees communicating to members about investment option performance in a targeted manner.

Commenting on the findings, ASIC commissioner Simone Constant said: “Australians trust their super funds and financial advisers to ensure they’re getting the best possible returns on their super savings. We expect funds and advisers to ensure that trust is not misplaced.

“Members should be informed about their super investments – not left in the dark if their super investments are not performing as expected, and there may be better alternatives.”

The regulator said its review confirmed trustees, advice licensees, and advisers should undertake performance-focused due diligence before offering investment options to members, approving options for use by advisers, or recommending them to members.

Moreover, the regulator cautioned them to “take care” to ensure they do not fail in their duties by overrelying on each other or external rating agencies when performing their roles.

ASIC also detailed its expectation of super trustees, noting that it wants them to:

• Prioritise investment performance throughout the product life cycle.
• Have systems in place to detect and address persistent underperformance.
• Regularly monitor investment option performance against return objectives and benchmarks.
• Ensure they have sufficient capacity to manage investment options, including clear and comprehensive policies, resources, and data reporting arrangements.
• Effectively communicate with members about performance, which could include targeted communications and comparisons of actual returns to return objectives.
• Act in response to sustained underperformance to minimise member risks.

“As more Australians approach the drawdown on their hard-earned retirement savings, it’s critical the super and financial advice industries make sure they do everything possible to promote informed and confident investment decision making by members,” said Constant.

“ASIC, along with APRA, wants to see [the] industry focus on ensuring fund members are achieving good investment outcomes that ultimately support stronger outcomes in retirement. This work on Choice products is part of that.”

As of September 2023, Choice products accounted for over $1.1 trillion in superannuation savings held by Australians across 7.5 million member accounts. Many Australians hold these products based on the recommendation of a financial adviser.