ASIC says, “Performance does matter.”
While this ASIC report focuses on superannuation product choice and performance, we believe it will eventually apply to non-superannuation products.
With this in mind, consider how your business will adapt as you read the critical action we have included for licensees and advisers. Particular considerations are sources of performance research and the inclusion of existing investments’ performance and alternatives.
As your independent auditors, we would like to know if performance research will be included in our audit process from now on.
ASIC Report 779 Superannuation choice products: What focus is there on performance? | February 2024
“Trustee, advisers and advice licensees support good investment performance outcomes for members” ASIC Report 779
ASIC Report 779 released – Focus on performance:
- ASIC inquiry into the conduct of super trustees, advisers, and AFS licensees examines why some members continue to invest in persistently underperforming investment options under their choice super products.
- The report highlights an insufficient focus on performance and a lack of transparency about persistently underperforming investment options. Trustees, advisers, and licensees significantly influence the composition of a choice member’s superannuation investment portfolio.
“Members are in products that are aligned with their goals” ASIC Report 779
Action points for licensees:
- Licensees should ensure that their advisers detect and address underperforming options held by their clients.
- This includes ensuring advisers conduct a reasonable investigation and assessment of the client’s investment options when relevant to the subject matter of the advice to enable them to detect and address performance issues.
- Licensees should treat performance as a primary consideration when approving products for use by advisers or managing APLs.
- They should have rigorous processes for detecting underperforming options that have been approved for adviser use and addressing these in a timely manner.
- Historical performance should be considered, including against the option’s performance benchmark in the PDS.
- Licensees should also retain records of the steps they have taken to detect underperformance and monitor investment options approved for use by their advisers. This includes the licensee’s decision-making and communication with advisers about managing underperforming options held by their clients.
Action Points for advisers:
- Advisers should treat performance as a primary consideration and consider information from various sources to develop and support their recommendations. They should be careful not to over-rely on licensee product approvals or external research ratings.
- The fact that a licensee approves an option or has a minimum external research rating does not mean that an adviser can ignore its performance when providing personal advice.
- Advisers are expected to conduct a reasonable investigation and assessment of investment options to detect and address underperformance when relevant to the subject matter of the advice. This includes the client’s existing options even where an option represents a small part of the client’s portfolio.
- Advisers must explain the basis of the advice and communicate underperformance, explaining why the recommendations are appropriate despite the underperformance and based on the client’s relevant circumstances. This includes when recommending acquiring, retaining, or redeeming an underperforming option.