On Tuesday 2 May 2023, the FAAA made a submission to the Government in response to a draft regulation to extend the Your Future Your Super (YFYS) performance testing to Choice superannuation products. Performance testing has been in place for two years for MySuper products. This year it is being extended to Trustee Directed Products, which are multisector investment options where the trustee or a related party are the investment manager. This will impact Mastertrusts and Wrap products. Where a fund or an investment option fails the Performance test, the members of that fund/option will receive a prescribed notice from the trustee, highlighting the fact that the fund/option has failed the test and encouraging them to consider moving.
The performance test is based upon a 10 year period. We are concerned that some clients who will receive these letters will be unnecessarily concerned given a range of factors, including the actual investment return whilst they have held the option and tax reasons preventing the client from being moved. We also have reservations about the calculation methodology, which may result in some options incorrectly being assessed as failing.
It is likely that few advisers are aware of this development, and will have no understanding of how this performance testing regime works. On 26 April 2023, APRA issued a media release on their super fund performance heat map, suggesting that one in five Choice products underperformed. The failure rate was much higher for investment options closed to new members (two thirds). We have been told that the expansion of the performance testing regime to Choice funds could impact as many as 5,000 advisers and many tens of thousands of clients. This will require a great deal of work by advisers to address the concerns of these clients when they receive this notification and potentially offering new advice.
In our submission we have focused upon our concerns with the consultation process, consideration of adviser relationships and the lack of balance in these performance test failure notifications, particularly where moving may not be in the best interests of the member and some important flaws in the assessment regime. It is important that advisers are aware of the implications of this reform, as if implemented on the basis of what is proposed, the failure notices will be going to clients in around October this year. We will update you once we know more about these changes. The regime will later be expanded to all Choice funds and options.
Please click here to see a copy of the FAAA submission.
For any questions on the super fund performance testing regime or our submission, please email policy@afa.asn.au.
