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Performance test comms criticised

ASIC is warning super trustees to ensure they communicate upcoming performance test outcomes correctly to members, saying some of the funds that failed the test last year also failed to adequately inform members.

The regulator has reviewed the performance test communications sent by the 12 trustees of the 13 failed products, finding that trustees generally complied with the legal obligations to notify members - but some, it says, may have risked confusing or misleading members.

According to ASIC, seven trustees had general issues with the quality of their communications while six had issues with the mandatory disclosures required of them.

Some trustees published the notification of the failure on a page on their website that was less likely to be visited by someone interested in the product rather than the homepage, or chose to place more emphasis on other performance measures, such as recent positive performance.

In some cases, trustees saw the communications as an opportunity to criticise aspects of the test to suggest it was not relevant to the product that was failed, ASIC said.

Further, ASIC said: "Our review suggested that often the primary aim of trustees whose product failed the test was to retain members, even if this involved using communication strategies that potentially undermined good decision making by individual members."

In some cases, attempts to retain members also bordered on providing financial advice, ASIC noted.

Getting into specifics, the regulator said one trustee used other ratings and rankings to promote performance.

"A trustee whose product failed the performance test described it as 'top rated'. The trustee displayed an image of a 'five-star' award received for the product with the words 'you can have peace of mind knowing that your super is in great hands', without disclosing that the product had failed the test. The Product Disclosure Statement (PDS) also had an image of a tick of approval," ASIC's review states.

In another instance, ASIC said: "A trustee whose product failed the performance test answered an FAQ about why its product was 'underperforming' by referring to its performance against its own percentage return above inflation target, and without reference to the test."

Other issues raised by ASIC related to ongoing disclosure and included a trustee that used a banner at the top of its homepage to communicate the failure, knowing this banner was used regularly for various information and would be updated in due course.

ASIC also reviewed communications sent by third parties, including an instance in which unions connected with two of the funds that had products fail contacted union members. In turn, ASIC contacted the unions reminding them financial services laws apply to them in terms of member communications and that they be careful not to provide unlicensed financial advice or make misleading representations about products.

"We also raised this issue with a peak union representative body, so our concerns were communicated more generally throughout the industry," ASIC said.

ASIC commissioner Danielle Press said the performance test supports transparency of product performance for members so they can make more informed investment decisions.

"Trustees should act in their members' best financial interests by being transparent about the performance of their product. They should communicate their performance test results to members in a balanced, clear and factual way," she said.

"Communication strategies that don't prominently disclose the test result or obscure the importance of a failed result in some way are not acceptable."

She added that where ASIC feels suitable, particularly in the case of a product's second failure, it will take appropriate action to protect consumers.

As at June 15, all but three funds with products that were failed last year have since merged or made plans to. The three that haven't are AMG Super, Colonial First State's FirstChoice and Commonwealth Bank Group Super.

Read more: ASICAMG SuperColonial First StateCommonwealth Bank Group SuperFirstChoice