Key points
- ASIC has conducted a review of cold calling for superannuation switching business models, amid evidence of adverse consumer outcomes arising from unsuitable financial advice.
- We observed considerable volumes of superannuation fund movement as a result of cold calling conduct, including inflow into platforms, high-risk property investments and significant payments to cold calling operators.
- ASIC identified several areas of concern, and is reminding financial advisers, Australian financial services (AFS) licensees, and superannuation trustees of their responsibilities towards clients and members.
For many Australians, retirement planning is a critical step toward securing their financial future. Australians often look to financial services professionals for support when forging a superannuation strategy that helps ensure they can retire with dignity and reap the benefits of a lifetime of hard work. Australians should be confident these professionals are exercising the same diligence and working in their interests to help achieve good retirement outcomes. This includes ensuring superannuation savings are not eroded by unnecessary or inappropriate fees and charges, and that the products in which they are investing are designed to maximise retirement outcomes and sufficiently balance risk.
However, ASIC is concerned some financial advisers, licensees, and superannuation trustees are benefiting from high-pressure sales tactics used by cold calling operators and click-bait advertisers to encourage inappropriate superannuation switching. This conduct should not be confused with legitimate contact by financial advisers and superannuation trustees in the course of providing financial services to their existing clients and members about their superannuation.
In our 2023-27 Corporate Plan, ASIC announced a cross-sector project focused on deterring cold calling for superannuation switching business models. These models typically use the services of a cold calling operator, who makes cold calls to clients to encourage them to undertake a 'review' of their superannuation. The outcome of the 'review' always results in a recommendation of a switch of the client's superannuation, either to another fund regulated by the Australian Prudential Regulation Authority (APRA) or a self-managed superannuation fund (SMSF). In the most concerning models observed by ASIC, large proportions of clients' savings were ultimately invested in high-risk property schemes. Many of these models fail to consider insurance policies held through the client's existing superannuation arrangements, at least initially, to ensure the transaction can progress quickly. This is sometimes referred to as a 'layered advice' model by the business model operators.
What we observed
We observed considerable volumes of superannuation fund inflows into platforms, high-risk property investments, and associated payments to cold calling businesses.
ASIC is concerned some high-pressure, cold calling for superannuation switching business models are providing unnecessary and inappropriate advice leading to poor outcomes for clients. These adverse outcomes range from superannuation erosion due to high fees and charges, to a possible reduction in superannuation savings due to inappropriate investment in high-risk and/or low-quality superannuation investment options.
Case study 1
Jack Smith is in his late 40s and has a superannuation balance of $410,000 and $80,000 in life and total and permanent disability (TPD) insurance. Jack was contacted by a cold calling operator on his way home from work. The cold calling operator asked Jack about his existing superannuation fund and balance, and then offered Jack the opportunity to participate in a free superannuation review.
Instead of a review of his superannuation, Jack was subjected to high-pressure sales tactics from the cold caller, who made misleading statements about his existing fund's fees and performance, and cast fear and doubt over its ability to fund his retirement. The cold caller told Jack he would be better off with an alternative strategy, such as opening an SMSF and investing in a property scheme so he could then direct his own investments and access investments that were not available in his existing retail fund.
The cold caller undertook a fact-finding process with Jack and his details were then provided to a financial adviser. The financial adviser prepared a statement of advice (SOA) that identified Jack's objectives as being to set up an SMSF and to implement an investment in the 'ABC Property Fund' and the 'XYZ Mixed Assets Fund' - both funds operated by the financial adviser's licensee. The adviser attempted to limit the scope of his advice by omitting the question of whether an SMSF, and the investment in the ABC Property Fund or the XYZ Mixed Assets Fund, would be appropriate for Jack.
Jack was advised to rollover $400,000 to the new SMSF, and how he should distribute the $400,000 between the ABC Property Fund and XYZ Mixed Fund. The SOA contained misleading statements, which included that Jack should expect a return on his investment of 15% per annum. Jack was then asked to sign an 'authority to proceed', using an electronic signature, while he was on the phone. He was not provided with an opportunity, off the phone, to read and understand the advice contained within the SOA.
Jack was invested in a conflicted, high-risk product and charged $23,000 in upfront fees, which were made up of advice fees, SMSF establishment fees, service fees to the cold caller, and product fees. Jack's ongoing fees, made up of ongoing advice, product and SMSF admin fees, also increased by over $11,000 per annum.
*This case study is based on an actual case observed by ASIC over the course of its review, although some details have been changed to preserve the anonymity of individuals and entities.
Case Study 2
Nadia Yousef was contacted by a cold caller who offered her a free superannuation search and full review of her current superannuation to 'ensure she is on the right track'. Nadia, was a 47-year-old retail assistant with $65,000 in the 'Red Delta Superannuation Fund' where she also held linked life and TPD insurance.
After she agreed to the free super search and full review, Nadia was transferred to a client services officer who worked for a financial planning firm associated with the cold caller. The client services officer collected limited information from Nadia, including the details of her existing fund and whether she would like her fund to earn a greater rate of return. During the phone call, the client services officer made misleading statements about the nature of the Red Delta Superannuation Fund and cast fear and doubt over its ability to fund Nadia's retirement.
The next day, Nadia was contacted by a financial adviser unknown to her, who presented her with a Statement of Advice (SOA). The scope of the advice contained in the SOA was limited to advice about her superannuation.
The advice documented in the SOA recommended opening a new superannuation fund, switching $42,000 from her existing fund, and investing in the new fund's 'high growth' option. It contained advice suggesting Nadia retain $15,000 in, and continue making employer contributions to, her existing fund to maintain her insurance. However, the adviser did not ascertain how much insurance she held in this fund or consider whether this was an appropriate recommendation to make to Nadia.
The SOA contained misleading projections that indicated Nadia's net retirement position would increase by approximately $20,000, as a result of proceeding with the switch. However, the projection failed to include the impact of fees and did not account for the fact that Nadia's employer contributions were not being directed to the new fund. Nadia was then asked to sign an authority to proceed, using an electronic signature, while she was on the phone. Nadia was not provided with an opportunity, off the phone, to read and understand the advice contained within the SOA.
Nadia was charged an upfront advice fee of $3,300 and her ongoing fees, made up of advice and product fees, increased by $850. She did not receive a lost super search or a full review and was left with multiple superannuation funds. She was invested in a high-risk investment option without having received an assessment of her risk tolerance.
*This case study is based on an actual case observed by ASIC over the course of its review, although some details have been changed to preserve the anonymity of individuals and entities.
ASIC's review indicates that targets of cold calling businesses are typically in the accumulation phase of their superannuation journey, aged between 25 and 50 with balances of at least $50,000. Client details are often purchased from third-party data brokers, with data collected from:
- publicly available online sources,
- websites visited by consumers,
- social media channels, and/or
- online quizzes or competitions consumers have entered.
We have also observed some cold calling businesses bypassing data brokers by posting click-bait advertisements on social media platforms like Facebook and Instagram. These advertisements often promote superannuation comparison calculators, which give consumers the impression their existing superannuation fund is underperforming.
Image: An imitation of social media click-bait ads used by cold calling for superannuation switching business models to generate leads.
Key considerations
ASIC is concerned about the fragmented nature of some cold calling business models, particularly deliberate attempts to avoid legal liability or present the illusion of independence to consumers. Our analysis indicates that some business models may be engaging in misleading and deceptive conduct.
ASIC has a cross-sector project focused on deterring cold calling for superannuation switching models, and will take action, including enforcement action, to protect consumers from high-pressure cold calling practices that induce inappropriate superannuation switching and result in the erosion of superannuation balances.
ASIC began taking action against this type of business model in 2020 with the revocation of the AFS licence of Smart Solutions Pty Ltd and the banning of the adviser and responsible manager. Since 2020, ASIC has finalised other matters in relation to this type of conduct, including numerous adviser bannings, AFS licence cancellations, supervision orders and criminal convictions for hawking (the use of unsolicited marketing for sales of financial products).
Cold calling businesses making contact with consumers that leads to a referral to another party for the provision of financial advice should consider whether they require an AFS licence. Even if they do not require a licence, they must ensure any representations they make to consumers are accurate and balanced. If the representations they make to consumers - including around the adequacy of the client's existing fund, fees or expected performance - are misleading, they will be breaking the law. These entities must take steps to satisfy themselves about the accuracy of information they present to consumers.
Financial advisers should steer clear of referral arrangements with cold calling business models using high-pressure sales tactics.
Any licensee that has engaged the service of a high-pressure sales referral source should consider how this arrangement fits with its obligation to act efficiently, honestly and fairly towards its clients and act accordingly.
Other licensees should consider the supervisory arrangements they have in place to ensure they can identify advisers or corporate authorised representatives within their network that may have these type of referral arrangements, and the steps they are taking to ensure their representatives comply with financial services laws.
Superannuation trustees should review their processes to ensure they are not benefiting at the expense of people who become their members. This does not mean trustees need to check every SOA but it means they should have processes in place to identify practices that may be resulting in superannuation balance erosion, including from inappropriate advice fee charges. ASIC will have more to say about this as part of our review of trustees' oversight of advice fees and charges.
Ultimately, financial advisers, licensees, and superannuation trustees should ensure they work to deliver good retirement outcomes for clients and members to uphold member trust and the integrity of the financial system. This includes notifying ASIC when becoming aware of activity associated with unscrupulous cold calling for superannuation switching business models.
ASIC is Australia's corporate, markets and financial services regulator.
