Industry super funds boss blasts 'inadequate' safeguards

THE head of the body representing industry super funds has blasted as "inadequate" the independence safeguards proposed by the for-profit sector.

By InvestSMART · 8 Oct 2012

By InvestSMART ·
8 Oct 2012

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THE head of the body representing industry super funds has blasted as "inadequate" the independence safeguards proposed by the for-profit sector.

The Industry Super Network chief executive, David Whiteley, wrote last week to the head of retail fund umbrella group the Financial Services Council, John Brogden, setting out his concerns about the independence of super fund directors.

Under an FSC proposal, directors of super fund trustees will count as independent if they are also an independent director of the sponsoring financial institution's board.

Industry funds, which are non-profit, are controlled by a board of trustees made up of representatives of employers and unions.

The submission made by the ISN to the FSC represents the latest in a long-running battle between industry and retail funds for dominance of Australia's $1.3 trillion superannuation nest egg.

Mr Whiteley told Mr Brogden he did not "believe the draft standard will have credibility in the broader community. The definition of independent director is novel but fails to address the obvious conflicts of interest and duty a director of the parent company and/or subsidiary would have if appointed to the board of the trustee."

In its submission, the ISN says the duties that a director of a bank or other financial institution owes to that company will inevitably conflict with their duties to the members of the super funds.

Mr Whiteley called on Mr Brogden to participate in a broader process that would set a standard binding both halves of the superannuation industry.

An FSC spokeswoman could not be reached yesterday, but BusinessDay understands the organisation feels its proposed standard complies with the Australian Prudential Regulation Authority and the stock exchange's independence standards.

The proposed standard would make it impossible for a bank executive to sit on the boards of a super fund run by the bank.

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Frequently Asked Questions about this Article…

What is the dispute between industry super funds and retail funds about?

The article describes a long-running battle between non-profit industry super funds and for-profit retail funds over governance and control of Australia’s $1.3 trillion superannuation pool. The immediate dispute is over proposed independence safeguards for super fund trustees put forward by the Financial Services Council (FSC) and criticised by the Industry Super Network (ISN).

What does the FSC proposal say about who counts as an independent director of a super fund trustee?

Under the FSC proposal reported in the article, a director of a super fund trustee would be classed as independent if they are also an independent director of the sponsoring financial institution’s board — effectively recognizing directors who sit on the parent company’s board as independent for the fund trustee role.

Why does the Industry Super Network (ISN) say those independence safeguards are inadequate?

ISN chief executive David Whiteley told FSC head John Brogden that the draft standard is unlikely to have credibility because it fails to address obvious conflicts of interest. ISN argues a person who is a director of a parent bank or financial institution will have duties to that company that inevitably conflict with duties to super fund members.

How could a bank director’s duties conflict with the interests of super fund members?

According to the ISN submission in the article, the legal and fiduciary duties a director owes to their bank or sponsoring financial institution can clash with the director’s obligations to act in the best interests of super fund members, creating an inherent conflict of interest if the same person serves both roles.

What did David Whiteley ask the FSC to do in response to his concerns?

David Whiteley asked FSC head John Brogden to take part in a broader process to develop a binding standard that would apply to both industry (non-profit) and retail (for-profit) halves of the superannuation industry, rather than adopting the FSC’s draft on its own.

Did the FSC respond to the ISN’s criticism in the article?

An FSC spokeswoman could not be reached for comment, but BusinessDay understood the FSC believes its proposed standard complies with the Australian Prudential Regulation Authority (APRA) and the stock exchange’s independence standards.

Would the proposed standard allow bank executives to sit on super fund boards run by their bank?

The article says the proposed standard would make it impossible for a bank executive to sit on the boards of a super fund run by the bank, indicating a bar on direct executive appointments from the sponsor company to the fund trustee board.

What should everyday investors watch for in this debate about trustee independence?

Everyday investors should pay attention to trustee independence and potential conflicts of interest when choosing or reviewing a super fund. The article highlights competing proposals and calls for binding standards, so investors may want to watch how regulators and industry bodies like the FSC, ISN and APRA resolve governance rules that affect fund oversight and member protections.