The Australian financial regulator has warned superannuation funds over poor advice practices akin to the ‘fees-for-no-service’ scandal uncovered in the 2018/19 Royal Commission.
In a report handed down last week, the Australian Securities and Investments Commission (ASIC) found “evidence of inadequate oversight of advice fee deductions” that could put super fund member savings at risk.
“Concerningly, we have identified that in a small but serious number of cases, the superannuation balances of members are being reduced to pay for advice that instead of being helpful is destructive to their retirement outcomes,” the ASIC report says.
Super funds can pay advice fees out of member account balances, albeit under limits introduced in the wake of the Australian Royal Commission into financial services.
But an ASIC review of 10 super funds last year revealed the sample group collectively charged almost A$1 billion in advice fees during the 12-month period with “caps as high as $20,000 or 5% of a member’s balance were in place, with few trustees implementing controls to protect members with low balances”.
According to report, some members in 70 per cent of funds incurred advice fees of A$15,000 or more out of their accounts.
The ASIC probe also found three super funds did not check any of the advice provided while others failed to adequately monitor or approve advisers who serviced their members.
In the statement, Simone Constant, ASIC commissioner, said that the regulator “is concerned about the potential impact on superannuation members, particularly amid evidence of balance erosion from fee deductions for advice originated by cold calling business models using questionable sales tactics that pressure members into switching superannuation funds”.
Last year the Australian government introduced a proposed law change to allow super funds to embed advice fees in general scheme administration costs, a practice that was banned some time ago.
Currently, KiwiSaver providers can pay advice fees out of admin expenses, spreading the cost over all members regardless of whether they use an adviser or not.
The Financial Markets Authority has been reviewing KiwiSaver advice charges under its value-for-money approach to the licensed funds management sector with further guidance expected.