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BFCSA: Switching Super Advice - Peter Kell knew what financial risks were in store for Mum and Dads

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In late 2004 and early 2005, ASIC undertook a surveillance looking at whether advisers were complying with their obligations to disclose, in the Statement of Advice (SOA) given to clients, the costs, possible loss of benefits and other significant consequences of following advice to switch super funds.  During this surveillance, ASIC uncovered some cases where the interests of clients were harmed by poor advice.

The purpose of this report is twofold:

•  to explain the methodology behind the surveillance; and
•  to illustrate the results of the surveillance in simple language


ASIC started surveillance on superannuation switching advice in December 2004 to assess how financial advisers were, at that time, complying with new legal obligations relating to advice to switch superannuation products.

ASIC’s surveillance sample included 19 AFS licensees and 93 representatives of those licensees. Initially, ASIC reviewed 101 client files in which personal advice was given to switch superannuation funds in the second half of 2004. In the process of making further inquiries, ASIC reviewed the compliance procedures of some licensees and over 160 further advice files (ie a total of 261 files from 93 people representing 19 licensees).

Licensees were selected from the retail, industry fund, corporate and government sectors. Some advice was from independently-owned advisers. ASIC also reviewed advice given in relation to self-managed superannuation funds (SMSFs).

ASIC required all licensees the subject of the surveillance to provide information about the switching advice they had provided during a 3 month period. ASIC received information on around 7,500 pieces of switching advice. 4,900 of those were from advisers whose licensee was a related entity to the trustee of the superannuation fund they recommended (see table below for break-up of conflicted advice per licensee).


ASIC used a number of tools to determine whether the licensee was a related entity to the trustee of the super fund recommended. This included review of the Financial Services Guide provided by the adviser, and also use of ASIC’s ASCOT database to ascertain related entity status.

ASIC required each licensee to produce on average 5 client files for full review (totalling approximately 100 files). Typical selection for a retail adviser included one consolidation advice, one switch recommendation from an industry fund to a retail fund, one retail fund to another retail fund, one corporate fund to a retail fund, and one public sector to a retail fund. These files were taken from a selection of switching advice given over a specified three-month period for each licensee.


For one very large licensee, however, ASIC reduced the scope of the notice to only include information about switching advice provided by representatives with surnames (or company names) beginning with A-D over a one month period.

Further files were also requested from advisers and licensees where concerns were detected after review of the first batch of client files – an additional 160 files in this category, totalling 261 files overall.

SUMMARY OF FINDINGS............There were three main findings:

•  Limited investigation of the ‘from’ fund. Most advisers recommending a switch had made limited or no investigation of the fund that they advised the client to switch from (ie the ‘from’ fund).
•  Poor disclosure of the costs, loss of benefits and other significant consequences if the advice is followed. As a result of limited or no investigation of the ‘from’ fund, most advisers in our surveillance did not comply with the specific obligations to disclose the costs, loss of benefits and other significant consequences of the recommended switch. In the SOAs we reviewed, disclosure about the basis for the recommendation to switch was generally poor.
•  A tendency to recommend a fund related to the licensee.

Based on the statistics provided by licensees, there is a strong tendency among advisers to recommend switching to a fund related to the licensee. In these cases, there is a conflict of interest that must be carefully managed in order to avoid the perception that advice is inappropriate or is not given on a reasonable basis, or that the interests of the licensee are placed above those of the client.

•  A tendency to oversell life insurance. There were a number of examples where advisers seemed to recommend life insurance to clients where there did not seem to be a reasonable basis for doing so.

ASIC ACTION..................ASIC has taken, and proposes to take, a wide range of actions in relation to the findings of the surveillance.


pages 39 - 47..............tables  of  data


page 48 - 51..................EXAMPLES OF POOR ADVICE


page  51     Using the ASIC super calculator, we estimate the clients’ retirement payouts will be reduced by between 22% and 44% as a result of the advice to switch. There is some evidence that Adviser 1 deliberately lied by saying that Fund 2 was cheaper. In one instance, the SOA does not disclose important costs in Fund 2.  In addition, Adviser 1 recommended three clients (all single with no dependants and little debt) take out life insurance of $250-$300,000, which was far more than they were likely to need.  The SOAs also failed to disclose that clients will generally lose their insurance as a result of the switch and that Fund 2’s insurance premiums were generally more expensive than Funds 1.


1 ’Compliance action’ is a tool used by ASIC, particularly in the financial services industry, to improve the standard of compliance with the law. It has the benefit of being more wide ranging, timely and less costly (for ASIC and the licensee) than traditional enforcement action. In this case, it includes formal directions requiring licensees to take steps to address the compliance findings set out in the 6th column of this table. Licensees who receive such directions are required to provide an audited report to ASIC in early December 2005 detailing the steps taken and changes made. Where monitoring of specific advisers is required, the licensee must review, train and supervise that adviser over the course of one year.


page  48 - 51





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  • doyla66
    doyla66 Sunday, 06 April 2014

    Who on earth allowed ASIC clowns to fiddle with superannuation? If I am reading this correctly it states to switch can incur a loss of up to 44% AND (by the way) you also forfeit your ins. cover??? AND ASIC have known of this since 2004??? Add to that the u-tube by Greg Tanzer telling anybody who cares to watch it (Published on Oct 1, 2013 - one minute ago just 82 views) that SMSF's are NOT covered re compensation if any investment goes belly-up and it sounds like a good spraying out of the ASIC headquarters with Agent Orange is needed and urgently!

    Sam Bell sits down with ASIC Commissioner Greg Tanzer to discuss the Asian Funds Passport, FOFA implementation, financial sector ethics and self managed super funds that SMSF's

  • doyla66
    doyla66 Sunday, 06 April 2014

    Financial expert shuns financial advisors and credit scene - sensible lady

    I was talking with a financial expert friend. She doesn't have credit cards, she finished off her mortgage. If a business won't deal with her because she doesn't have a credit card, she couldn't care less - their problem, they've just lost her as a potential customer. She won't go near financial advisors, even for the higher rates of interest. That's too risky, according to her. She'd know. She's a process server and investigator and sees the results of dodgy financial conduct multiple times every day.

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