In brief - Will Royal Commission's findings be catalyst for change recommended in the Productivity Commission's report into the superannuation industry?
Registrable superannuation entities (RSEs), and presumably their fund members, will be watching the Royal Commission's inquiry into superannuation with much interest, as suitable "conduct" continues as an inquiry theme.
Investigations in the current round of commission hearings mirror many of the concerns raised by the Productivity Commission in its April 2018 draft report Superannuation: Assessing Efficiency and Competitiveness
. This report contains the preliminary results of the Productivity Commission's investigations and its recommendations for various matters. The purpose of the report is to improve outcomes for members and system stability, as well as to provide recommendations to reduce barriers to efficiency and competitiveness.
Governance is dealt with in Chapter 9 of the report. This is interesting reading on the Productivity Commission's thinking in respect of the ongoing efficiency of the superannuation system and governance.
Naturally, governance and board issues in the superannuation field are a somewhat vexed area, involving political considerations, as well as funds management legal and operational matters.
Whether the Productivity Commission's recommendations reach the legislation or rules framework, or both, is a matter that the industry should await with interest. The Royal Commission could be the catalyst for change.
The Productivity Commission reports that:
- a number of governance practices remain that raise not inconsiderable doubts about whether funds always act in the best interests of members at heart. For example:
- not all funds employ satisfactory practices for appointing adequately skilled and qualified board members, and it appears that some sponsoring entities do not take this process seriously
- there is often inadequate independent assessment of board capability
- not all funds have adequate practices in place to deal with related-party transactions
- many fund CEOs claim that their boards regularly assess and fully understand the attribution of investment performance outcomes, but relatively few funds were able to provide the data that they would hold if they had undertaken this activity
- many funds acknowledge that they are at least somewhat focused on peer risk (their short-run performance relative to their peers)
- some "independent" retail fund board members are on a number of related-party boards, which raises, at least, perceptions of conflicts of interest
- some funds have poor disclosure practices, and while regulatory requirements regarding the information that must be displayed on websites are met, many funds make such information difficult to find
- many funds have failed to merge when it appears likely mergers would have been in the best interests of members.
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