APRA, ASIC set clock ticking on super trustee fee crackdown
The Australian 12:00am April 11, 2019
Ben Butler
Regulators have given the custodians of Australia’s $2.7 trillion in retirement savings just 11 weeks to come clean on how they are short-changing savers by charging fees and providing nothing in return.
In a letter sent to every superannuation trustee company in the country today, the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission said they had already “identified a range of industry practices in relation to trustee oversight, many of which fall below the standard we expect”, some of which were “the subject of enforcement investigations or actions”.
“This raises concerns about some trustees’ risk governance, capabilities and culture, as well as their ability to appropriately manage conflicts of interest,” the regulators said in the letter, signed by APRA deputy chairman Helen Rowell and ASIC commissioner Danielle Press.
They said they expected super trustees to finish their reviews by June 30 and “reserve the right to exercise our powers in relation to any subsequent enforcement action required”.
And they said they expected super trustees to pursue financial advisers who had ripped off their fund members for compensation, warning that failing to do so could break the law.
The regulatory action follows up on the exposure at banking royal commission hearings last year of a series of fee-for-no-service rip-offs perpetrated against super savers by some of Australia’s biggest financial institutions.
These included NAB, AMP and CBA charging fees to thousands of dead people, as well as rorts where living clients were charged for financial advice they never received.
In their letter, Ms Rowell and Ms Press told trustees they “must have in place strong governance, risk management and oversight processes to ensure that only authorised and appropriate fees and other charges are deducted from members’ superannuation accounts”.
“Accordingly, APRA and ASIC expect all trustees to be reviewing the robustness of their existing governance and assurance arrangements for fees charged to members’ superannuation accounts, and to address any identified areas for improvement in a timely manner.
“Should such reviews uncover any significant issues or deficiencies in the risk management systems and processes of trustees, our strong expectation is that trustees give urgent consideration as to whether a reportable breach has occurred, and if so, whether it has been escalated in a manner that will ensure appropriate remediation takes place.”
They said that the reviews should consider issues including whether fees had been “explicitly authorised by members”, whether services had actually been provided, whether the deductions were in the best interest of members and whether they were consistent with the “sole purpose test” contained in super law.
The sole purpose test dictates that only fees for advice that relates directly to a member’s super, or for insurance, can be deducted from the client’s retirement nest egg.
“There is a range of data points accessible to trustees that would suggest the deductions made may be inconsistent with the sole purpose test (for instance, the value or frequency of the deduction for the fee),” Ms Rowell and Ms Press said.
They also took aim at the oversight of advisers by trustees, saying they had seen arrangements where funds used planners as “a de facto distribution mechanism for funds with an understanding that the financial advisor may negotiate fees of a significant value to be deducted from the member’s account”.
And they lashed trustees who had decided “not to pursue financial advisers for compensation for their members or have indicated to financial advisers that they cannot accept such payments”.
“APRA and ASIC consider that this practice may represent a breach of the SIS legislation, in particular payment standard requirements,” they said.
“Trustees should expect the regulators to take enforcement action in the event breaches are uncovered.”