Non-compliant personal advice rife at super funds: ASIC

Just 49% of the files looked at by ASIC as part of its review of financial advice provided by super funds were found to be compliant with best interests duty.

Reviewing the personal advice provided by 21 super funds, ASIC's Report 639: Financial advice by superannuation funds shows less than half of the files reviewed demonstrated full compliance with the best interests duty and related obligations.

Of those reviewed, 36% of files did not demonstrate compliance though also did not indicate the member receiving the advice was put at risk of financial or non-financial detriment as a result. However, 15% did show the member was put at risk.

Of these, 10.7% were at risk of financial detriment, 1.7% were at risk of non-financial detriment and 3% were at risk of both.

ASIC reviewed 233 advice files from 28 AFSLs providing advice on behalf of 21 super funds. This included a mix of intra-fund advice (14%), scaled advice (29) and comprehensive advice (57%) but did not include general advice.

Industry funds provided 128 files; 59 files came from retail funds; 30 files were obtained from corporate funds; and 16 files were from public sector funds.

ASIC said the main reasons files were deemed non-compliant were because the advice provider failed to identify the subject matter of the advice and the member's objectives, financial situation and needs; and because they failed to conduct a reasonable investigation into financial products and base all judgements on the member's relevant circumstances.

"Our advice reviews showed that the compliance rate for retail, industry, corporate and public sector fund types varied within a moderate range," ASIC said.

"Due to the different sample sizes, it is not possible to fairly compare the overall quality of advice based on fund type. As such, our findings are aggregate findings and are not broken down by fund type."

However, the findings did show financial advice provided by internally employed staff had the highest rate of compliance, while third-party providers and those employed by a related party achieved a much lower rate of compliance

In total, ASIC reviewed the advice provided by 25 super funds, however only 21 of those funds provide personal financial advice. ASIC also noted that, in some cases, the super fund was not the advice provider.

Commenting on the findings, ASIC commissioner Danielle Press said: "Superannuation funds have a very important role to play in meeting the financial advice needs of members wanting to build their retirement income. It was pleasing to see that the personal advice reviewed was generally appropriate for members."

"We recognise that inappropriate superannuation advice can have a significant detrimental impact on members' future financial security. Where we did see some risk of detriment, we will be following up with the advice provider and requiring that they review and remediate the affected member."

More broadly, Press said proper oversight of advice fee deductions from super accounts for all advice - not just that provided by trustees - is an area of ongoing focus for ASIC, working alongside APRA.

"I know there will be general interest in whether retail or industry funds provided better quality advice. We found the quality of advice to be similar across retail and industry funds," she added.

ASIC staff reviewed 39 advice files, while 194 were reviewed by three independent experts selected through a tender process.

The average fund balance for each member whose file was looked at was $375,982.

Involved in the review were 11 retail funds, 10 industry funds, two corporate funds and two public sector funds.

Read more: ASICDanielle Press
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