In the draft legislation, released today, the government has proposed that all APRA-regulated superannuation funds would be required to have a minimum of one third independent directors and an independent chair.
Assistant Treasurer Josh Frydenberg said the proposed reforms were aimed at improving the governance structures of superannuation funds.
“[This] is in-line with several recent independent reviews of the superannuation system that recommended that superannuation trustee boards include a higher number of independent directors,” Mr Frydenberg said.
“Further, the Financial System Inquiry (FSI) recommended that boards have a majority of independent directors, including an independent chair,” he said.
ISA deputy chief executive Robbie Campo said he was “astounded” by the decision.
“The watchful eyes and questioning minds of industry super fund directors have not only delivered the best performing funds, they have avoided the widespread consumer losses and scandals which have engulfed the major banks and wealth managers over recent years,” she said.
The FSC said it had led the push for the board changes since 2013 and urged parliament to pass the reforms.
“As superannuation grows from $2 trillion today to $7 trillion by 2035, good governance will be imperative for protecting consumers from potential conflicts of interest that may arise on boards of superannuation funds,” the FSC said.
BT Financial Group also welcomed the government’s announcement and said the move would create more competition.
“Increasing the number of independent trustees will create new competition for positions, broadening the talent pool from which directors are drawn, and ultimately delivering better outcomes to fund members,” Melinda Howes, general manager, superannuation at BTFG said.
Industry Super Australia’s chair Peter Collins noted, however, that to the extent that the government sought to legislate in order to require funds to have a majority of independent directors, it did not have a mandate.
“At no stage prior to the last election did the Coalition raise the option of a majority of independent directors,” he said.
“There is a real danger that imposing uniform requirements will dilute the diversity of governance arrangements and increase systemic risk in our super system.”
The exposure draft legislation stated that the definition of ‘independent’ is to include persons who do not have a substantial holding in the trustee or do not have (or have not had within the last three years) a material relationship with the trustee, including through their employer.
A three-year transition period would apply for existing funds.
Mr Frydenberg added while the government has carefully considered this FSI recommendation, it considers the proposal for one third independent directors and an independent chair will “substantially strengthen” governance arrangements.
Damien, you are right there are still conflicts, but these are all in the accountant and union fund space. FOFA has cleaned up financial planning. There are no ongoing scandals with financial planners. It is all old news from pre FOFA times.
But by all means lets have a royal commission into union funds, and let’s have a new ASIC director who doesn’t openly endorse the accountant model of conflicted SMSF advice.
Wow…the ISA screaming like a stuck pig when the focus is on them….now that’s surprising isn’t it !
They wouldn’t want to lose that nice comfy union relationship would they.
Perhaps the ISA could think about giving Bill Shorten a job when he get’s the bullet from his existing one….Bill works well with unions apparently!
Good point Damien on comparisons. It’s for a Balanced Fund that’s 90% growth assets to outperform a Balanced Fund that’s 70% in a growing market. Another thing that our compare the pair friends don’t tell their members.
The more I think about it the more I want to see a Royal Commission into financial services – with broad terms of reference looking into everyone involved.
There are so many conflicts out there it is staggering. I recently heard someone say that 90% of the people that come to them end up in an SMSF. How is that any different to 90% of people going to a bank aligned planner ending up in the bank’s product or 90% of people speaking to an industry fund ending up in an industry fund.
The whole industry stinks and needs complete overhaul. There are very few independent advice groups out there and those that tout they are independent and recommending all new clients establish and SMSF (when they or someone associated with them get the audit and tax work for the fund) are completely deluded.
ISA you are kidding yourselves if you think independent directors is not the right thing to do.
On that topic, how about we get some consistency on what is a Balanced fund.
A Union Super Financial Planning Manager was on LinkedIn recently saying that his planners had a broad choice of funds available on their APL – 2 funds, both run by Union Super. Its not appropriate for everyone client to be in a Union Super fund.
Less cushy jobs for mates playing with the savings of members. Cant be a bad thing unless your one of those with the cushy Unions sponsored job. The language of descent from ISA suggests its a good move.
How funny. The Union Funds are always the ones that complain about conflicts of interest in the vertically integrated retail super sector, but when there is a proposal to improve diversity and independence they are against it! Interesting.
It’s like any of the Union Super funds employing planners to provide advice in-house to their members. I can hazard a strong guess as to how many members are advised to move into a fund that isn’t operated by the parent company, to set up an SMSF, to implement a comprehensive insurance strategy, etc, etc. Conflicts in that? No way mate, we’re from Union Super. One wonders when CHOICE will do an in depth of that and deliver the unsurprising report that Union Super planners put 99.5% of clients into Union Super products? A tip….NEVER!!
Independent directors is a cop out. We need a royal commission into union control and abuse of superannuation funds.
Hmm this is not saying there is anything wrong with the current setup of industry funds per se but looking at future proofing them as they grow in size. The other elephant in the room is do we need so many funds and should there be mergers something all funds should ask themselves if they truly had members interests at heart.
Hmmm, if the ISA doesn’t like the proposal, it is probably a good thing for them to do. After all they are the conflict-of-interest specialists.