Although nine months have passed since the publication of Report 779, aimed at shedding light on decision-making in underperforming super products, it continues to resonate within the industry, according to ASIC Commissioner Alan Kirkland's discourse at the Professional Planner Researcher Forum.
Commissioner Kirkland emphasized the importance for trustees, advisors, and their associated licensees to enact thorough evaluations utilizing researcher ratings as part of their decision-making frameworks. "We expect the end users... apply their own rigorous processes," he stated, pinpointing the location in New South Wales’ Blue Mountains.
Moreover, although the report refrained from prescribing explicit measures for dealing with underperformance, it underscored the necessity for appropriate acknowledgment and documentation of these patterns. Kirkland specified, “To be clear, our objective in this review was not to make our own judgements whether a particular option should be made available or...” Kirkland elucidates.
Despite the lack of a definitive action requirement from the regulator, trustees are suggested to develop robust governance tools, including comprehensive policies supplemented by adequate data reporting and analytical systems.
Kirkland reasoned that while fluctuations in performance are expected, persistent underperformance woven into investment menus or advisor-approved options demands a rationale rooted in the members' concerns. His comments were consistent with revelations from the original source at _Professional Planner_.
This focus, Kirkland iterated, necessitates an examination of how super trustees, advisors, and licensees reliably track persistently lagging options. Supplemental reliance on external research without consideration of potential conflicts of interest further underscores this issue.
"Research that’s not credible can damage confidence in the research sector itself and in the financial system more broadly," Kirkland cautioned, insisting on heightened transparency alongside clearing any material conflicts.
The burden then extends to advisors, who should remain cautious of overreliance on product approvals from licensing bodies or external ratings. "Where a product persistently underperforms, advisers should consider..." Kirkland advised.
Measures for licensees include establishing stringent mechanisms for identifying and responding swiftly to persistent underperformance relative to performance benchmarks outlined in product disclosure statements.
The regulator’s extended consultation revealed that an undue dependency solely on minimum external rating for investment menu inclusion should be avoided, encouraging thorough performance evaluations against precisely demarcated targets.
"Effective monitoring of performance... includes effectively communicating underperformance," Kirkland outlined, urging actionable communication strategies aligned with the clients' financial well-being.
