Fix performance test before extending it – FAAA

Mike Taylor

Managing Editor and Publisher

24 June 2026

Products which fail the superannuation performance test will not always be rejected by financial advisers, according to the Financial Advice Association of Australia (FAAA).

The FAAA has told Treasury’s consultation around strengthening the performance test that advisers do not generally use the performance test as a standalone product selection tool.

“A failed performance test result may justify further investigation but should not automatically trigger switching decisions,” it said. “There can be broader consequences for switching funds or investment options that need to be carefully a assessed.”

The FAAA cited the example of a member in an underperforming fund not switching immediately if they will soon enter a 0% tax environment in pension phase

It said financial advisers are also supported by external research reports and licensee processes to approve products before they are available to advisers to recommend.

“Additionally, advisers remain responsible for the products they recommend to clients including reviewing whether the products remain suitable for clients over time,” the FAAA said.

The FAAA also emphasised the need for the Government to address the “recognised limitations’ in the performance test before seeking to extend it into new areas arguing that there needs to be “reform before expansion”.

It said the FAAA does not oppose expanding the performance test in principle but recognised the challenges.

“We do note that whilst the most direct next step might be multi sector externally directed products, evidently this would involve a large number of funds. In the initial stage, consideration should be given to the size of an investment option prior to it being included in the scope of the test,” it said.

“It is our view that Treasury should first address benchmark design issues, finalise its approach to alternative and emerging asset classes, develop a robust investment taxonomy, undertake comprehensive back-testing, conduct consumer testing and consult with advisers and professional bodies, before extending the test more broadly.”

“We would also encourage consideration being given to the appropriateness of the test being done on the basis of a $50,000 member balance. It is our view that this is no longer appropriate. The average superannuation balance per member is now over $170,000. Using a materially higher amount would make the test more relevant to the average consumer.”

The FAAA also noted that the performance test was not a mechanism for identifying problems such as the collapse of the Shield and First Guardian funds.

“The Shield and First Guardian collapses highlight the importance of strong consumer protections, governance arrangements, disclosure and regulatory oversight,” it said.

“While these events strengthen the case for reviewing the scope of the performance test, they also demonstrate that no single regulatory mechanism can substitute for strong governance, disclosure, regulatory oversight and access to professional financial advice.

“Where fraud and misrepresentation of performance occurs, it is not possible for the superannuation performance test to identify this,” the FAAA said.