APRA: We won’t be consulting advisers on choice super test

Mike Taylor

Managing Editor and Publisher

3 August 2023

The financial advice sector has not been consulted by the Australian Prudential Regulation Authority over extending the superannuation fund performance test to “choice” products and the regulator has no intention of doing so without an instruction from the Government.

While it has been widely acknowledged that extending the superannuation performance test to “choice products” will be complex because many members will have received financial advice to join a fund, APRA says it has not engaged with the financial advice profession.

APRA’s attitude is important because it is planning to run the first choice performance test this month.

APRA’s attitude has been expressed in answer to questions from Queensland Liberal Senator, Susan McDonald who pointed out that the choice performance test would “impact a range of products that are subject to personal financial advice by financial advisers”.

“APRA recently issued a statement that 20% of choice products failed the APRA heatmap test. Given that the YFYS performance testing regime results in a letter being sent to clients, where their fund or investment options has failed the test, how broad do you think the impact of this new phase of the YFYS performance testing will be? How many additional clients might be impacted?” McDonald asked.

“Has APRA engaged with the financial advice sector on the consequences of these changes?”

“The receipt of these letters from their super fund will cause a lot of concern for these clients, particularly where they have a financial adviser. Does APRA accept that there are many circumstances where these letters will go to clients and cause unnecessary anxiety? I am talking about situations where the underperformance related to a period prior to the client owning that option, where recent performance has been strong, or there are significant tax reasons making it inappropriate for a client to change their investment option at this point. What needs to be done to address the risk of this notice encouraging clients to make poor decisions?”

APRA responded that the number of products and options that will fail and the number of affected members will not be known until APRA run the performance test in August 2023.

“APRA has not engaged the financial advice sector. The design of the test is a matter for Government, including the extent to which the financial advice sector be engaged in the process.”

“The contents of the notification sent to members of products that fail the performance test is prescribed in regulation and is therefore a matter for Government.”