'Just do what you say you'll do': ASIC's message to trustees

ASIC commissioner Simone Constant says the regulator's new report on exorbitant advice fee deductions is not a criticism of advisers, rather of trustees failing basic obligations, with more still needing to be done by the reviewed funds some 12 months on.

Yesterday, ASIC released a report highlighting the failure of several super funds to adequately monitor and question fee deductions from member accounts being made by financial advisers and licensees. In its review of 10 trustees, ASIC found three trustees don't perform any checks in relation to advice fee deductions, with some allowing as much as $20,000 to be taken from a member's account before a red flag is raised.

Speaking to Financial Standard, Constant said that $20,000 fee cap is perhaps the starkest finding of all.

"If you're sitting at a trustee board and you see a $20,000 fee can be deducted before it raises a flag, that's hard to understand as a simple policy," she said.

She said trustees should be looking at their risk management processes and whether they're protecting members' funds against bad behaviour in advice and should be investing in their operations to keep pace with the requirements of members.

Constant said the report is part of a bigger piece for ASIC, in reminding trustees that they're expected to be accountable for the end services, results and retirement balances, "no matter how they go about things in the intervening years, whether they outsource their stance on advice."

"We see them as accountable through members and we want them to see their members as customers and consumers," Constant said.

She reinforced that the report, which identified concerning practices, is not ASIC taking a view on advice.

"We understand the importance of advice and supporting people in retirement - it's the whole point of what we're saying to trustees. That's what they're here for and they need to move with the times and keep pace," she said.

"It's 2024. Use your information, use your digital wherewithal in the digital age to do the right level of due diligence, testing and sampling. It's just good governance and good risk management, to make sure that having these advice fees taken out of [a member's] account, which is held in trust by the trustee, that it stacks up.

"I've been saying this to trustees, 'Meet those expectations of members, or we will hold you to account'."

Following the release of the report, Super Consumers Australia director Xavier O'Halloran said: "It's appalling that some funds are not closely monitoring fees and deductions from their members' super."

"It is a super fund's job to protect people's retirement savings from rip-off fees and services, but ASIC found that three of the funds they looked at were failing to even do basic checks of adviser fee deductions. This comes despite regulator warnings to improve on this back in 2021."

While trustees were specifically warned on advice fee deductions in 2021, they were also issued a warning in 2019 by the regulators, urging them to ensure fees charged to member accounts were aligned to members' best interests.

Constant said why trustees haven't heeded those warnings and been more proactive on this front is a question for the trustees, adding that ASIC is still working closely with APRA regarding poor oversight of advice fee deductions.

"It's a question for them, but it perhaps relates to our overall messaging which is that it's 2024 and given the significance of the system, and not just in terms of the scale but also changing needs of members as they head into retirement, things are becoming more complex," she said.

"Regardless, trustees have their obligations to meet. So, if you're going to have the scale in terms of the mergers, the size and the growth, then you need to have the right risk management, right systems, invest in the capabilities to meet these requirements."

As part of the review, the 10 trustees that ASIC looked at ranged in size, with giants like AustralianSuper and Australian Retirement Trust included alongside smaller players like AMG Super, Netwealth and Praemium.

Despite her comments on scale, Constant said there was no evidence found to suggest that the size of funds influenced their level of oversight.

"If we had found anything, we would have called it out because we like to promote better practice. What we did identify was the intersection with cold calling and aspects of the system that are not up to scratch in supporting members' interests. That's the one trend I'd say we found, people in the advice space and not having the right controls to support that and then [seeing members] getting advice to roll in or move into another fund on the basis of cold calling," she said.

"That's the only trend I'd point out, that intersection of bad behaviours. It's unsurprising..."

Super Consumers Australia has now called on the government to ban unfair trading and end inappropriate advice spruiking or cold calling altogether.

"Unfortunately, some funds and advisers are forgetting the lessons of the Financial Services Royal Commission and the horror of 'fees for no service'. Right now, some within the industry are calling for the removal of obligations on super funds to protect people from inappropriate advice fees. We're calling on assistant treasurer Stephen Jones to protect the savings of Australians from dodgy practices by retaining these protections," O'Halloran said.

"It is good to see ASIC shining a light on poor practices. We expect ASIC to now follow up with strong enforcement action against trustees and advisers to deter future misconduct."

Since the review wrapped in March 2023, Constant said there has been some response from the participating trustees in aggregate, but there's more to be done.

"There has been some improvement, but I think what ASIC would say is that it's disappointing there has not been more... we've had strong engagement and a sense of listening, but we want to see more action," she said.

At the end of the day, Constant said super funds just need to do what they say they'll do.

"You've got a really significant accountability for your members who are consumers. Do what you say you'll do and be transparent and accountable in meeting those fair expectations," she said.

"If you don't, we're shining a light on that, and we'll be holding you to account."