Superannuation comes under scrutiny: Issues of note
The financial services royal commission turned its sights to Australia's $2.6 trillion superannuation industry. A report was released on August 24, highlighting accountability, poor conduct and the role of regulators as key issues, particularly among retail funds.
Issues that arose
The commission exposed a broad range of areas for further investigation. It will look into these in more detail before publishing its final report in February 2019 (the interim report due September 30, 2018 is not expected to cover superannuation). Superannuation issues that arose included:
- Fees charged to members for no service.
- Overcharging of fees.
- Fees for deceased member accounts.
- Delayed transition to MySuper Accounts.
- Possible breaches of the Superannuation Industry Supervision (SIS) Act 1993, Australian Securities and Investments Commission (ASIC) Act 2001, and the Corporations Act 2001.
- Retention of low balance accounts.
- Possible conflicts of duties of trustees.
- Adequacy of identification provisions by super funds for Aboriginal and Torres Strait Islander members.
- Organisational structure issues.
- Generally not acting in the best interests of members.
- Cultural issues in retail superannuation.
Specific policy questions that arose included:
- What is the benefit to consumers of advertising by funds?
- Should employers be required to act in the best interests of members when selecting a default fund?
- How appropriate is it to sell super through bank branches?
- Is legislative intervention warranted concerning trustees and advisers? Should grandfathered commissions be removed?
- Should directors be appointed and removed by shareholders using broad discretion?
— ABC News (@abcnews) August 17, 2018
Likely outcomes of the royal commission for superannuation funds
"Clarification of the roles of ASIC and APRA (the Australian Prudential Regulation Authority) in the deterrence of poor conduct is likely – the Commission seems to have been quite dismissive of the current consultative approach," says Jane Byrne, Director at PFS Consulting and superannuation expert.
"It also seems likely that some changes around vertical integration in the retail superannuation space will be recommended. A lot of the issues have arisen because a trustee doesn't have as much power as the bank owner or wealth management company, so enshrining the trustees' supremacy is a key area that needs to change," explains Jane.
— Financial Review (@FinancialReview) August 17, 2018
What does this mean for PFS Consulting clients?
Much of the royal commission's focus was reserved for retail funds. However, a key area the commission highlighted was the need to ensure conduct meets community standards and funds act in the best interest of members. This isn't so much a legislative issue as a cultural problem. Funds need to find a way of making sure their culture enables and encourages proper conduct, as well as eradicates misconduct.
Specifically, funds can focus on a variety of areas to ensure they don't fall foul of the royal commission and any ensuing legislation:
- Reinforce the legislative requirements to act in members' best interests throughout their organisations, particularly focusing on management of conflict of interest and of duty.
- Ensure they have control over arrangements with outsourced service providers.
- Review their culture to ensure conduct risk is managed to the level of community standards and expectations.
PFS Consulting's superannuation services can help clients with all of these things and more, ensuring they're managing the risk ensuing from the royal commission.
It's still too early to say exactly what the commission's findings will be, particularly as the recent turmoil in the Australian government has called into question its ability to effect extensive legislative changes. However, it's important businesses are preparing now for whatever the outcomes of the report may be – for superannuation funds, culture will be key.
To find out more about how PFS Consulting can help, contact the team today.