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05-224 Super switching surveillance and shadow shopping
The Australian Securities and Investments Commission (ASIC) today released the findings of a review of advice given in late 2004 and 2005 by financial advisers to more than 260 people thinking of switching superannuation funds.
The super switching surveillance sought to test the readiness of advisers to give complying super switching advice ahead of the implementation of super choice on 1 July 2005.
ASIC has used the findings to highlight to industry groups potential problem areas and to prepare the ASIC Guide Super Switching Advice: Questions and Answers, which was released in June.
The review looked at recommendations to switch superannuation funds from a diverse range of advisers, including advice to move into self managed superannuation funds.
In particular, it focused on the two main switching advice obligations relating to:
- conduct: an adviser who gives a switching recommendation must have a reasonable basis for their advice
- disclosure: an adviser must disclose the costs of the switch, any loss of benefits and other significant consequences of making a switch.
ASIC found that a lot of the advice reviewed disclosed little or no consideration of the client’s current fund.
ASIC also found that there was a strong tendency to recommend a client switch to a superannuation fund related to the licensee. This creates the potential for conflicts of interest that need to be carefully managed to avoid the risk of inappropriate advice.
‘The findings highlighted some areas where licensees and advisers needed to lift their game. In particular, we identified some instances of misconduct during the surveillance, some of which has already led to enforcement action’, said Acting ASIC Chairman, Mr Jeremy Cooper.
‘Both ASIC and the industry bodies have been working hard since the surveillance was undertaken to address the problems that were identified and have sought to ensure that financial advisers have the tools to comply with their obligations.
‘ASIC is confident that the platform for super choice is now in place.
‘Now that choice is in place, we have started our shadow shopping survey that tests the superannuation advice given to 300 real consumers.
‘The survey will provide us with a strong insight into a consumer’s real life experience of getting advice, and will provide a better understanding of what they were told, as well as the documents they were given.
‘We will also be checking whether the financial advice provided complies with the law. We will continue to closely scrutinise superannuation switching advice and will take action where licensees and advisers are letting clients down by not complying with their obligations’, he said.
A copy of ASIC’s super switching surveillance report is available from the ASIC website at www.asic.gov.au.