The corporate watchdog will review up to 50 superannuation fund trustees after concerns about funds using aggressive marketing tactics and inducements to win employers' lucrative default fund business.
As part of wider project looking at member experience and effective disclosure, the Australian Securities and Investments Commission will send letters to the super fund trustees this month requesting information about their practices.
The regulator wants to investigate the quality of advice and information that is provided to employers by trustees when they are making decisions about their default funds for their employees.
"We'll be looking at all of the material around the super fund trustee relationship including the type of marketing collateral funds give to employers," said Gerard Fitzpatrick, senior executive leader of investment managers and superannuation at ASIC.
"We are very interested in how members are treated, and if as a result of aggressive marketing approaches or competitive drive, whether members are being disadvantaged or are being provided with information that does not allow them to make appropriate investment decisions."
Becoming an employer's default fund is a potentially fruitful area for superannuation funds as they battle for a slice of Australia's $2.1 trillion in super assets.
Corporate Superannuation Association chief executive Bruce McBain said the market is opening up as more companies choose to outsource their super responsibilities to another fund or external trustee.
"Increasingly, with the increasing regulations and licensing requirements, companies have said that if providing superannuation is not a core benefit and where the same benefit can be give to the employee, they've opted to close the fund and outsource," he said.
According to Australian Prudential Regulatory Authority data only 31 out of a total of 231 funds were identified as "corporate funds" for the year to June 2015.
AMP said in an internal email this week that 80 per cent of new members come via its corporate channel, as The Australian Financial Review revealed that the beleaguered financial giant planned to aggressively pursue corporate superannuation mandates as part of a plan to boost cashflow at the struggling group and return it to growth.
This new review comes after ASIC's warning to employers last year against selecting a default fund for their staff "on the basis of an inducement".
Under s68A of the Superannuation Industry (Supervision) Act 1993 inducements can cover a range of things including corporate hospitality and tickets to sporting events, or discounts on products or services.
ASIC says it will also examine areas such as "advice given to employers and how this is paid for, as well as looking at disclosure material that is provided directly for employers by trustees and entities".
As part of this most recent review, ASIC will be looking at retail and industry funds.
"If we are trying to undertake some form of review, we will take a representative sample of the entities that may be liable," Mr Fitzpatrick said.
"So it wouldn't be any one sector, but we'll look at the areas that we would consider to be the highest risk."
In 2015, industry fund lobby group Industry Super Australia commissioned a survey that found that the four big banks – Commonwealth Bank, Westpac, National Australia Bank and ANZ Bank – offered businesses inducements including free tickets to sporting events, lower insurance premiums and cheaper interest rates on business overdrafts if employers switched staff default super funds to the bank's retail funds.
The chief executive of ISA David Whiteley said that for the integrity of this system, there needs to be transparency about how default funds are selected.
"If there are allegations and evidence of banks offering incentives to employers to become the default fund irrespective of the investment returns of the fund itself then that raises very significant public policy issues and it should be front of mind for the government. The only institutions that would oppose that are those that are looking to leverage the business banking relationship to gain benefit of the default fund," he said.
"The policy solution is quite simple ... no financial services provider can provide both banking services to a business and be the default fund for employees."
But the chief executive of the Financial Services Council Sally Loane disputed this.
"A recent inquiry conducted jointly by APRA and ASIC, based on unfounded claims that inducements were being offered, found no evidence that Section 68A of the Superannuation Industry (Supervision) Act 1993 had been broken in the superannuation industry. Claims that inducements are being offered are not substantiated by evidence and are deliberately misleading," she said.
It is understood that after the letters are sent to the super trustees, there may be another round of questioning as the review continues.
The corporate regulator will also be scrutinising insurance arrangements within super and will issue a report into member experience and effective disclosure as it continues its work in 2017.
