Best-in-show funds pose pressing issues for advisers

The Productivity Commission's proposed best-in-show list of the top 10 default superannuation products could have pressing implications for financial advisers which shouldn't be overlooked.

According to Wealthdigital technical manager Rob Lavery, the ramifications for advisers stemming from the 571-page draft report assessing the efficiency and competitiveness of the superannuation system have not been given enough airtime.

In the report, ASIC notes the best-in-show list would be taken into account when guidance is provided to advisers, particularly around the best interests duty, Lavery said.

Furthermore, the same section mentions ASIC would consider making it mandatory for advisers to consider the best-in-show list, referring to it as the "if not, why not rule."

"Having a clear-cut, 10-fund list that forms the core of every adviser's superannuation Approved Product List (APL) would create consistency in the advice provided to clients. It would also, hopefully, provide advisers with a more clearly defined safe harbour than is now the case," he said.

But there are a number of drawbacks to this approach, Lavery said.

"When it is known that using a fund from the best-in-show list cannot be viewed to be outside the client's best interests, why risk an off-list recommendation? The risk of cookie cutter advice is significant," he said.

"That the recommended best-in-show list is only reviewed every four years is also worrying. A lot can happen in a four-year period and it may not be in a client's best interests to be invested in the ninth best fund from three-and-a-half-years prior."

Concerns about the impact such a list would have on the funds available to advisers and clients should also be taken to account.

"By limiting the possible default funds to 10 for a four-year period, those funds not on the list will stagnate and in all likelihood, lose membership and cost effectiveness. The growing, best-in-show funds may well start to consume the disadvantaged funds that missed the list," he said.

This diminishes incentives for a new participant to enter the market, and it would be an "enormously loss-leading exercise" for a new fund to attempt to survive off individuals who voluntarily switch and those advisers brave enough to make off-list recommendations.

"Innovation in superannuation will suffer as a result," he said.

Advisers should ensure their voices are heard in the industry and have until July 13 to make a submission, Lavery added.

Read more: AdvisersProductivity CommissionASICRob LaveryApproved Product ListAPLFinancial advice
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