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ASIC warns of industry weakness on performance test communications

Funds that have failed the Your Future Your Super performance test need to improve their communications on underperformance and product closure, according to ASIC.

An ASIC review of performance communications from funds that failed the Your Future Your Super (YFYS) test shows improvement, but they still need to be more “member-centric” in their approach. It’s an area of industry weakness, ASIC says, and a common conclusion of ASIC’s member communications reviews.

“The performance test supports transparency of superannuation product performance so members can make informed financial decisions for their retirement,” said ASIC commissioner Danielle Press (pictured). “Trustees that fail the performance test need to get the balance right in their communications – they need to be transparent and factual about the performance of the failed product.”

Trustees have complied with their obligation to notify members of the failure and had “good processes” to ensure that no new members joined products that had closed as a result of YFYS test failure. But ASIC found that some trustees need to design and deliver performance communications “with their current members in mind”.

“ASIC’s review found that some trustees took a reactive approach to performance test communications or significant events such as mergers and did not have cohesive communications strategies in place,” ASIC said in a release. “This meant that their communications to members were inconsistent or lacked clarity. To ensure that members understand the impact of relevant changes, trustees should consider from a members’ perspective what communication members will receive and when.”

While the performance test has been the most controversial aspect of the YFYS regulations, fund and member reactions to it are probably a close second. In 2021, the then newly-appointed APRA board member Margaret Cole noted that the vast majority of members of failed funds had not moved their super after receiving a letter, with only seven per cent of accounts in 13 funds – representing $2.2 billion dollars – closed in the immediate aftermath of the test.

ASIC’s other areas for improvement included providing consistent messaging about performance across the fund’s website; ensuring that communications are balanced and “don’t undermine the fact that the product failed the test”; and providing clear call-centre transcripts for staff to discuss performance failure or product closure with members. Prior to its review, ASIC wrote to trustees that were likely to fail a second time to set out expectations about updating product disclosure statements and issuing significant event notices; trustees “interpreted these obligations differently”.

‘As the performance test expands to trustee-directed products, I strongly encourage trustees to assess their approach to member communications, reflecting on the suggested areas for improvement,” Press said. “Trustees should bear in mind ASIC’s expectations for balance, prominence and clarity in their performance communications to members,.”

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