In this Q&A with Investment Magazine, Australian Institute of Superannuation Trustees president David Smith outlines the areas where the organisation must stand firm amid a swirl of distractions in the year ahead. The Energy Super trustee and trade unionist is a proud advocate for the profit-to-member funds sector.
Investment Magazine: What are your top priorities as AIST president in 2018?
David Smith: My goal is to avoid being too distracted by the current political environment − in which responses will likely be required to the Turnbull Government’s legislative agenda, the Productivity Commission and potentially a royal commission – and refocus on AIST’s four strategic areas: embedding the profit-to-member ethos; advocacy for a better superannuation system; enhancing members’ education and skills; and governance improvement and monitoring.
We will have to wait and see if the government gives us the clear air space to achieve this.
The adoption of the AIST Governance Code and the Insurance in Superannuation Voluntary Code of Practice, both introduced in 2017, will also be a major focus for our member funds in 2018.
IM: What do you see as the biggest challenge for the profit-to-member fund sector in the year ahead?
DS: Profit-to-member funds need to stay focused on their key objective. This means working on long-term outcomes for fund members, net returns and how we improve retirement outcomes for our members. This will need some attention in an environment of continuous change, so we don’t get caught up and distracted by the white noise about the industry that unfortunately appears to [be turning into] the norm from our politicians and the media.
What positive signs have you seen since the AIST Governance Code was introduced on a voluntary basis on July 1, 2017?
More than 30 funds have already signed up to the Governance Code, and a substantial number of these have already made some changes. The feedback is that engaging with the code has been a thought-provoking process, both during the consultation phase and now the implementation phase. A number of funds have stepped back and reviewed their internal governance processes, resulting in better member outcomes.
Ahead of the July 2018 deadline for compliance with the AIST Governance Code, what are the issues funds most need to be focusing on?
Funds need to examine their existing governance practices to identify whether any changes are necessary to meet the objectives of the Governance Code. This includes paying attention to the requirements that contain new disclosure obligations for funds. They may initially need to allocate additional resources to monitor fund performance against the 21 requirements in the code and to implement any necessary changes.
What have been the most positive developments you’ve witnessed across the industry since the introduction of the Insurance in Superannuation Voluntary Code of Practice in December?
AIST is very confident that our member funds will embrace the code and that this will lead to improvements in the way insurance in super is offered and claims are handled. Some AIST member funds have already signed up to the code and made changes to their insurance offerings, including addressing account erosion for certain member cohorts, such as the under-25s. It’s been great to see that the code is being supported by organisations like SuperRatings.
How has the Insurance in Superannuation Voluntary Code of Practice shaped the board’s approach at Energy Super, where you are a trustee director and chaired the claims committee?
I have just completed an extended period as chair of the insurance and claims committee at Energy Super and was involved in the consultation process during the development of the insurance in superannuation code. This has helped the board and the committee challenge our insurance offering to ensure its appropriateness for the sectors in which our members work. We have also used this period to re-examine our claims and complaints process in conjunction with our insurer. I am confident that over the coming period this will lead to a better and more robust insurance offering and claims-handling process for our members.
You chair Energy Super’s remuneration committee. What do you believe is the most important consideration in the structuring of incentive bonuses?
During my seven years as chair of this committee, there has been much discussion about incentive bonuses versus base salary for executive positions. Once a bonus payment is seen as just part of your salary, then it ceases to be an incentive.
The key performance indicators and targets over time can become more like business-as-usual, rather than real stretch targets that help drive outcomes in the strategic directions the board sets within its risk appetite. Bonuses can be an effective tool in executive salary packages to help deliver substantially above-average performance, but they must meet the board’s key requirement of acting in the best interest of members and improving member retirement outcomes.
What is your top tip for investment professionals about how to make their communication with the board more effective?
Don’t presume all directors understand the industry jargon. Always keep your board aware of all options available and the potential outcomes. The fewer surprises a board is confronted with, the better the relationship with your investment managers and advisers.
Who have been some of the most important mentors in your board career?
There have been a few, and mentors change as your skills and knowledge expand. When I joined the Energy Super board, it was a fellow director, John Bird. Further on in my career, and whilst I’ve been involved in AIST, Cate Wood, Angela Emslie and Garry Weaven have been the most influential on my thinking.
What is the most valuable piece of education or professional development you’ve done to develop as a trustee?
It was extremely valuable to complete AIST’s Trustee Director Course Level 2, ‘Enhancing Your Excellence’. You can never really complete your training in the role of a trustee director; this type of training was thought-provoking and made me rethink how best to develop and refine strategic planning.
How has your career as a trade unionist shaped you as a trustee?
Perhaps more than any professional development I have completed, my work as a union official for the Australian Services Union is what has most shaped my approach to the role of trustee director and president of AIST. The concept of doing what is in the best of interests of members and advocating on their behalf was embedded in me in my role as a trade unionist. This ethos is directly transferable to serving as a trustee director of a super fund. Looking after members is the reason I got involved in union work. I didn’t need legislation to tell me that it is the right thing to do and it informs the decisions I make at board level at Energy Super and in my role at AIST.