Retail, industry funds unite on trustee structures: ASFA

Ben Hurley

By

15/10/2018

The sporadically warring camps of industry and retail superannuation have largely agreed on the need to create clearer demarcations between governance structures of trustee boards and related parties, and on handing additional powers to the Australian Prudential Regulation Authority, the head of the peak body for Australia’s superannuation industry has said.

But trustee discretion and a considered appetite for risk were important elements that should remain in Australia’s superannuation, said Dr Martin Fahy, chief executive of the Association of Superannuation Funds of Australia.

Fahy said it was too early to comment on potential outcomes of the Hayne royal commission, as it has yet to release interim findings on superannuation, but he added that Commissioner Kenneth Hayne’s interim report into earlier rounds was a “very reflective and very considered piece of work” that appeared to be leaning more towards the view that enforcement of existing rules was more of an issue than a shortage of regulations and legislation.

ASFA’s submission in response to the superannuation round of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry “enjoyed widespread majority support” from both retail and industry ASFA members, Fahy said in an interview with Investment Magazine. And where there was disagreement, it was mostly over details rather than on broad principles, he explained.

End grandfathering

“Let’s take, for example, the grandfathering of commissions,” Fahy said. “People were saying yes, it’s right that we should have a sunset. [Regarding] the duration of the transition, is it 12 months, two years or three years? I think people were saying, ‘Let’s move at a pace that doesn’t have unintended consequences, potentially leave people stranded in bad products or put an undue cost burden on the system.”

The ASFA submission called for: an end to grandfathered commissions with a one-year transition period; clearer demarcations between governance structures of trustee boards and related parties, including a significant proportion of separate directors in dual-regulated entities; and handing powers to APRA to punish failures to act in the best interests of members.

On Thursday, the Australian Banking Association stated that it would seek to change the Future of Financial Advice (FoFA) law to abolish grandfathered payments and trailing commissions.

Earlier this week, the Commonwealth Bank promised to rebate all grandfathered commissions to customers from January 1, 2019, in response to issues raised the Hayne inquiry raised, following similar moves by BT Financial Group, Macquarie Private Wealth, National Australia Bank and ANZ Bank.

ASFA did urge caution about overstepping in response to some of the matters that particularly drew the ire of the commission and the public. For example, it stated that trustees should retain discretion regarding the charging of intra-fund financial advice fees out of the general administration fee. It also argued the selling of superannuation products through bank branches should not be banned outright but better managed.

No widening of SIS Act

ASFA also took the view that Section 68A of the Superannuation Industry (Supervision) Act should not be widened to further clamp down on trustees seeking to induce employers to select certain funds. Instead, the existing regulations should be better enforced and the regulators could help the industry gain greater clarity on what behaviour contravenes the rules, the association stated.

Allow retail MySuper products

There should also be no prohibitions on specific legal structures within superannuation, ASFA argued, which is at odds with some calls from the industry sector that retail funds be banned from offering MySuper products.

“We don’t think that every superannuation fund has to be a profit-for-member fund,” Fahy said. “Competition in general is very effective in driving good resource allocation, efficiency and innovation.

“If you look across the superannuation value chain, and you think about all of the activities – provision of administration, insurance, custody, funds management, actuarial services, audit services, asset consulting – a for-profit motivator is an inherent and explicit part of the superannuation value chain.”

Apart from commenting about the royal commission, Fahy also weighed in on comments last week from Industry Super Australia chief economist Dr Stephen Anthony, who argued super funds should consider greater lending to SMEs and businesses more generally.

Fahy said this decision came down to individual funds but that it was important to remember the primary aim of super funds is to generate returns for members and the funds already contribute more than many realise to nation building.

“Super is doing the heavy lifting as it is in terms of critical areas of nation building, and I think we generally need to be cautious in looking to super to solve and address what might be short-term credit contractions,” Fahy said. “[It seems there are] two public policy answers [that get applied] to every question in Australia; one is to put it in the Year 11 curriculum, the other is to get superannuation funds to invest in it. I would be very cautious on that.”

Last week, APRA chairman Wayne Byres said none of the industries it regulates, including super,  could yet be considered a profession.

“On the evidence before the [Hayne] royal commission, the balance between self-interest, company interest and serving the community’s interest has not always been appropriately struck,” he said in a speech. “The royal commission has suggested, amongst other things, that regulators can and should do more to actively enforce standards of behaviour within the financial sector, and punish those who breach them. Based on what has been revealed, that is a quite reasonable conclusion.”

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