The revelation that as much as seven per cent of money in APRA-approved default funds will pay out commissions to advisers until 2017 has led to hard questions on the role of independent directors in retail funds.
Speaking at the AIST governance symposium in Melbourne, several speakers expressed surprise that such a large proportion of default superannuation was still incurring such additional costs, which detracted from returns.
The speakers said such practice showed the fallibility of using independent directors to improve outcomes.
Louise du Pre-Alba, head of policy at AustralianSuper, said: “There are independent directors on the boards of some of those [retail] funds who are happy for those funds to extract commissions from members until 2017.”
She added that the general lower returns for retail funds over industry funds showed the case for a greater proportion of independents on industry funds had not been made.
The comments came in a debate on the Treasury consultation on better governance for superannuation funds.
This Treasury paper, published in November 2013, states: “Independent directors provide an external, dispassionate perspective, enabling boards to benefit from a diversity of views and provide a check on management recommendations. By being free from relationships that could materially interfere with their judgment they can provide an objective assessment of issues.”
Martin Lawrence, head of research at Ownership Matters, made the case for a phased transition of at least five years to a higher proportion of independent directors, as had occurred with ASX companies.
He added that boards of ASX companies tended to favour people known or similar in age or background to those on the board when choosing independent directors.
“They are very good at getting boards who look and resemble them,” he said.
He calculated the search fee for two ASX directors at $376,000.
Such costs highlight the government’s stipulation that any new regulation should not significantly add to costs.
The Better Regulation and Governance Paper states: “Where possible, submissions are encouraged to identify whether the proposal would generate additional compliance costs (or savings) compared to the status quo.”
In answer to the criticisms of independent directors at retail funds, John Brogden, the chief executive of the Financial Services Council, said: “As legislated by the former Labor government under Minister Shorten there is a transition period for ADAs. All of the $77 billion will be transferred into MySuper by 2017.”
He added that: “Industry funds expect independence on the companies in which they invest. They should be held to same standard.”
The FSC understands some retail funds would be moving default arrangements that still paid commissions into MySuper products long before the 2017 deadline.