SMC urges stronger protections to prevent consumer harm in high-risk super switches

Super Members Council

The Super Members Council (SMC) is calling for stronger protections to prevent consumer harm in high-risk super switching to avoid a repeat of what ASIC has described as a "catastrophe”.  

It is clear additional consumer safeguards are needed to protect Australians’ super savings - and SMC seeks to work with other system stakeholders in good faith to design stronger consumer safety protections.

The First Guardian and Shield collapses have laid bare the scale of serious consumer risks when Australians are urged to switch their super out of the high-performing mainstream super system – where there are strong consumer protections and strong regulatory oversight - into higher-risk places.

SMC supports ASIC Chair Joe Longo’s call for stronger consumer protections such as cooling off periods to give people the chance to “get a second opinion, have second thoughts.”

Australia’s retirement savings system is among the strongest globally, but its integrity and public trust rely on robust consumer protections.

SMC calls on Government, ASIC and APRA to work with organisations across the system to close any gaps that risk consumer safety and confidence.

In addition to backing reforms floated by the ASIC Chair, a package of broader ideas could include:

• Expand anti-hawking laws to tackle social media lead-generation, click-through ads and online funnels that replicate pressure-sales environments, which includes regulating seminar, telemarketing and referral-based tactics that target super switching and SMSF setups under the guise of “education” or “coaching”.
• Ensure consistently high standards and close any consumer protection gaps in governance accountability, executive accountability under the FAR regime, regulator supervision, and financial resource requirements across all super and investment platforms. Task this work to a joint ASIC-APRA-Treasury review, which should also reassess the trustee-for-hire model.
• Reintroduce ASIC’s 2010 “Investing Between the Flags” initiative and having official alerts when consumers are about to move outside system safeguards, prompting them to confirm they clearly understand the risks.
• Bring back an ASIC minimum recommended balance for SMSF establishment, on the MoneySmart website.
• Task ASIC to comprehensively review its conflicted remuneration guidance in light of practices highlighted by these two collapses.
• Use data-driven surveillance to monitor risk in high rates of super switching or SMSF establishment to identify consumer harm risks early and act sooner.

We anticipate others will also have important ideas for reforms to strengthen consumer protections following the Shield and First Guardian collapses – and we welcome the opportunity to work together on them.

“The social licence of the whole system relies on strong trust in super and strong trust in good advice – and Australians rightly expect there to be strong uniform consumer protections across the entire system,” said SMC CEO Misha Schubert.

“The collapses of Shield and First Guardian show the current consumer protections are not uniform enough – and we all have a responsibility to work together to ensure they are.”

“Many Australians are vulnerable to tactics that encourage them to switch their super into options that are more expensive, risky or not in their best interests. We need a system that universally prevents consumer harm.”

At the National Press Club last week, the ASIC Chair warned a “switching catastrophe started with ordinary Australians moving their super from a relatively safe environment to an unsafe environment.”

“We are seeing more and more people risking their retirement savings because they’ve been led to believe their current fund is underperforming and persuaded to seek higher returns somewhere else … this involves sales tactics designed to convince honest and hard-working Australians to transfer their superannuation savings into complex and risky schemes through an SMSF, or more commonly, a platform product,” Mr Longo said.

Separately, ASIC’s latest risk-based surveillance – which reviewed a limited selection of higher risk SMSF advice - found 38% of the reviewed files did not comply with the best interest duty.      

The ASIC report 824 also warned: “The movement of money out of a superannuation fund regulated by the APRA and into an SMSF means that fund members lose protections, such as the ability to take a complaint about the fund or its trustees to the Australian Financial Complaints Authority (AFCA) and the benefits of prudential regulation.”

ASIC highlighted a new scale of risks that “bad actors are trying to exploit, on an industrial scale” and said it would continue to take action in cases where Australians are encouraged to “roll over their retirement savings into SMSFs to access high-risk and harmful investments.”