The proposed cooling-off period for switching out of super funds, announced yesterday by the Minister for Financial Services as part of a package of consumer protection reforms announced in response to the collapse of Shield and First Guardian, is like so many steps on the road to hell: a paving stone of good intention. 

It aims to reduce the potential for super fund members, especially those without access to quality financial advice, to be misled or pushed into switching to a high-risk alternative from the relative safety of their industry fund – time to think it through and time to change their mind. 

The obvious problem with is that that it will also put a brake on sound and time-sensitive decisions to switch funds. 

A cooling off period when switching between super funds is quite different from a cooling-off period for an insurance policy. In that case, the consumer pays a premium and, provided they make no claims for the relevant period of time, they can change their mind and receive a refund of the premium (there may be administration costs incurred).  

But if a super fund member lodges a request to switch funds, there are questions to be answered about how the waiting period will work, how funds will handle it and how any potentially adverse impact on the member will be addressed. 

When a member lodges a rollover request, is the account balance calculated at the beginning of the waiting period, or the end?  

If it’s calculated – and hence fixed – at the beginning and markets rise, will the member miss out on any gains over the period? Is anyone responsible for making good those missed gains, or is that just the member’s bad luck? 

 If the account balance is calculated at the end of the waiting period, what happens if fund-specific issues cause their account balance to fall (it happens) during the waiting period and they could have avoided those losses if they had already moved to the other fund? Will those losses be made good, or is that, again, just bad luck? 

Taken as a package, the government’s consumer protection reforms in response to the Shield and First Guardian collapses make sense. It’s a good idea to crack down on lead generation by strengthening anti-hawking provisions. Improved governance and capital requirements of MIS operators are uncontroversial, as is limiting charging for inappropriate advice, and strengthening platform governance. 

None of those moves potentially unfairly or inadvertently penalise fund members who act with good reason, agency and full knowledge of what they’re doing and why, in the same way a waiting period could.  

There’s a risk that in quite reasonably seeking to make protections for members better, things might actually be made worse.