AustralianSuper group executive Sarah Adams (pictured) has called out the government for leaving dividend payments by retail funds out of the scope of its proposed best financial interests test and has questioned the “highly unusual” reverse onus of truth approach to regulating funds in this area as part of a submission to Treasury.

In a submission that takes multiple issues with Your Future, Your Super Exposure Draft Legislation and the Draft Exposure Bill that sets new standards for meeting ‘best financial interests’, Adams’s comments relating to the exclusion of dividend payments to shareholders of retail funds from the scope of the exposure bill are the most pointed.

“The Explanatory Materials accompanying the Bill fail to demonstrate how the estimated $10 billion diverted from members’ retirement savings annually can be in members’ best financial interests,” the submission signed off by Adams stated.

“Both the Productivity Commission and the Hayne Royal commission identified such payments as inconsistent with members’ best interests,” Adam’s statement noted.

“[W]e consider the proposed treatment of dividend payments by retail funds as ‘out of scope of the best-financial interests test’ as not reflecting the policy intent of the measure or members’ best financial interests in any sense,” it said.

The exposure bill’s ban on spending for brand building and limitations put on funding marketing campaigns while not addressing dividends paid to shareholders by retail funds was highlighted recently by Investment Magazine and has been brought up in multiple submissions to Treasury.

Further, the $200 billion fund’s submission raised issue with the reverse evidentiary onus of proof required by the provisions of the exposure bill, which is notes is “highly unusual for provisions of this nature” and is not currently reflected in existing ‘members best interests’ test.

“It is an approach used in a small number of areas (for example terrorism offences). It is unclear from the explanatory material why a reverse onus is necessary to protect members’ interests and why the Government considers the current system Regulators ill-equipped to enforce the proposed financial best interests test using the existing evidentiary model,” the Adams submission stated.

While the AustralianSuper submission noted that it agreed with the intent of the government’s proposals to reduce multiple accounts and to help highlight the best and worst performers, it raised many ways the proposals could be improved.

In the context of the proposed performance test the Adam submission notes the scope of the provisions are too narrow and exclude many relevant funds and products.

The AustralianSuper submission adds that the test for performance itself is too narrow because it is focused on ‘net investment performance’ only rather than ‘net benefit’ to members. Finally it notes the chosen benchmark approach risks funds gaming the system or otherwise adopting investment approaches contrary to members’ best financial interests over the longer term.

Smith is head of content and managing editor of Professional Planner and Investment Magazine.
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