MEDIA RELEASE: The Financial Advice Association of Australia (FAAA) has expressed concerns about the Treasury’s draft regulation to amend and expand the Superannuation Performance Test.

Sarah Abood, CEO of the FAAA, says while the FAAA supports the reporting of meaningful performance test information to members of superannuation funds, it has some reservations, both about the proposal and the process.

“It is disappointing that, as the leading association for the financial advice profession, we have not been directly consulted with, despite this matter having a substantial impact upon our members.

“The Exposure Draft Explanatory Statement makes no reference to the implications of this reform for financial advisers, who are a key stakeholder. Financial advisers are very much involved in the recommendation of Choice superannuation products.

“There has been no impact analysis undertaken, meaning that there has been no consideration of the impact of this reform on financial advisers and their clients.”

In its submission to Treasury, the FAAA has made five key recommendations:

1. Ensure financial advisers, as a key stakeholder, are involved in consultation and the rollout of these provisions.
2. Amend the performance test model to take account of the way mastertrust and particularly wrap products typically operate
3. Provide rollover relief to consumers where a trustee or fund manager closes an investment option and transfers the investors to a different option, such that the rollover does not trigger capital gains tax (CGT) for the consumer.
4. Improve the wording of the proposed notice to acknowledge that there may be good reasons to continue to hold an option identified as underperforming, including tax and insurance considerations, and that consumers should speak with their financial adviser before making any changes.
5. Require providers to ensure a copy of the notice is provided to each member’s adviser at or before the time it is sent to the member.

Ms Abood says the Australian Prudential Regulatory Authority (APRA) performance testing is likely to have a substantial impact on the clients of financial advisers, particularly as it applies to mastertrust or wrap products, and advisers will need to work closely with their clients to manage any issues that arise over the next six months or so.

“While we are not opposed to the introduction of performance testing for Choice products, it is critical that the regime considers the impact on financial advisers and their relationship with their clients. It is also essential that it is fair and does not treat certain products in a way where the performance results are skewed.

“There is a downside risk that needs to be considered, which is that it encourages some clients to make decisions to change products that might not ultimately be in their best interests. We are supportive of a message that encourages clients to consider the performance of their fund, but not one that scares them into making changes without accessing advice.

“We would welcome the opportunity to discuss these issues in more detail with Treasury,” Ms Abood says.