Stephen Jones

Best financial interest duty and draft regulation of line-by-line requirements may be what new minister for financial services Stephen Jones will be looking to reform after announcing current regulations impose unnecessary costs on funds and their members.

The minister has set in train changes to key superannuation reforms introduced by the previous government including streamlining financial disclosure rules at fund annual meetings.

Jones has tabled the draft regulations for comment on the annual meeting disclosures after earlier unveiling a Treasury review into last year’s Your Future Your, Super (YFYS) law.

The latter review is focused on the performance test but inevitably will include the full slate of changes including the insertion of the word “financial” into the best interests duty. The change was meant to impose more discipline on the funds to work for member returns but was seen by many as redundant because best interests and best financial interests are the same thing.

Too much red tape

The draft regulations tabled centre on the line-by-line spending requirements in annual meeting disclosures which are seen by many in the industry as imposing too much red tape. The new regulations require just expenses in aggregate instead of line-by-line expenditure statements.

Jones said in a statement “the current regulations do not align with the Australian Accounting Standards and impose unnecessary costs on funds and their members”.

“In order to improve the disclosure requirements and provide members with simple and clear information ahead of the annual meeting, the draft regulations will streamline disclosure, prevent the double-counting of certain types of expenditure, and align the definition of ‘related party’ with that used in the Australian Accounting Standards.”

UniSuper’s general counsel Luke Barrett described the new regulations as “common sense,” adding that people can always ask for more information on the spending at the meetings.

Demands for line-by-line statements were not so much for members but more for data miners for their own tactical purposes, Barrett said.

Spend to improve outcomes

The philosophy behind last year’s legislation introduced by then minister senator Jane Hume was to ensure super funds spending was devoted to improving member returns and not on the whims of fund executives such as their favourite football teams or for self-promotion.

AustralianSuper told Investment Magazine its total advertising bill worked out at $6 per member and at two basis points for administrative costs which added a net 50 basis points in value. This includes both industry super television ads and AustralianSuper ads.

The fund has 2.7 million members and, in theory, the more members it has, the lower the administrative costs per member.

Excessive annual meeting disclosures

Senator Hume’s YFYS package contained a few rules which also left the profit-for-member sector underwhelmed including the annual meeting disclosures addressed by minister Jones. The legislation had previously required the industry to act in members’ best interest so adding “financial” was seen as much the same thing.

Others saw more political overtones focusing on concerns super funds were channelling money to trade union interests. Deloitte’s Andrew Boal disagreed saying “the changes were really just good business practice”.

Of more concern were changes requiring a detailed list of expenditure with no materiality tests, which meant at annual meetings funds had to list everything from a packet of paper clips to annual sponsorship of the Richmond Football Club.

The industry also complained APRA could question a line in the accounts and the onus was on the fund to justify the expense. Naysayers said this amounted to a reversal of the onus of proof which Hume rejected saying if the regulator then took action it would have to prove the breach.

Accusations of political motivations

There was theatre around the changes with former Financial Services Council (FSC) policy head and present New South Wales senator Andrew Bragg and others including former treasurer Josh Frydenberg perceived to have a political bias against the not-for-profits because some had historic links with trade unions.

The issue was canvassed by the 2019 Hayne Royal Commission into Financial Services but effectively cleared.

FSC chair Blake Briggs told Investment Magazine “the FSC supported the introduction of the Best Financial Interest Duty as it clarified and strengthened the existing obligation of trustees to prioritise the interests of their consumers in all circumstances.”

“In addition to the enhanced reporting requirements, this was a significant improvement in the transparency of the superannuation system. If industry participants are looking for changes to the framework, the obligation will be on trustees to demonstrate how any changes benefit consumers,” he added.

 Separately, the FSC said in a statement it “welcomes the government’s decision to pause the extension of the Your Future, Your Super (YFYS) performance test beyond My Super products for 12 months, and to review the YFYS laws.”

“The broader review of YFYS will provide an opportunity to examine any unintended consequences of these important reforms, such as ensuring consumers have the option of selecting superannuation funds that align with broader goals such as ESG investing.”


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