APRA warned it is tipping super funds into personal advice arena

The Australian Prudential Regulation Authority’s (APRA’s) demands on superannuation funds to collect more data on their members may impose such cost that it actually runs counter to members’ best interests.

What is more, superannuation funds are worried that by asking their members for more information about their circumstances they may ultimately be perceived to have delivered personal advice when discussing or making a recommendation.

The regulator is proposing the enhanced collection of data as part of the member outcomes requirements, but the Association of Superannuation Funds of Australia (ASFA) has also warned that the additional mandated collection of data may also greater exposure to the risk of cyber breaches.

“Other than the data necessary to administer member’s accounts, generally there is little additional data available to trustees to be able to create meaningful cohorts of members. In this context access to data held by the Australian Taxation Office and Services Australia, in aggregated form, may be helpful,” it said.

“Given the level of engagement of the majority of members, it is likely to prove difficult to obtain information about the members of the fund/product without undertaking considerable research. This is likely to be quite expensive and may not produce any valuable insights that would materially affect the trustee’s strategic or business planning,” the ASFA response to the discussion paper said.

“…it may not be in members’ best financial interests to develop more complex and granular cohorts where the costs of monitoring and analysing data, and in developing tailored approaches to service members based on these cohorts, will outweigh any expected benefits to members that may result,” it said.

“Too many member cohorts would create complexity when monitoring, analysing, oversighting and reporting on cohorts, including a significantly increased demand on the trustee’s data and analytics capabilities.”

“Finally, the requirement for a trustee to demonstrate a deeper understanding of members’ needs, and take action on this understanding, is highly problematic. There is a risk that requesting additional information from a member may cause a member to form a reasonable expectation, when the trustee gives the member information, advice or a recommendation, that the trustee has taken that information into account and, accordingly, the trustee will be considered to have provided personal financial advice,” ASFA said.

“Trustees would not be able to recommend a particular product or investment option to a member without it being personal financial advice, which significantly limits the actions a trustee can take with respect to different cohorts.”

“Given the above, member organisations have asked APRA to consider the need for cohort reporting. As an alternative to requiring more granular cohorts it has been suggested that emphasis could be placed on trustees identifying specific potential detrimental member outcomes within a product/investment option and monitoring for that outcome.”