Speaking on a live ifa webcast on Thursday, Ms Levy said that there is currently a conflict between superannuation funds’ duty to act in the best interests of the members as a collective, and the duty to act in the best interests of individual members.
“The best interest duty that applies to a superannuation fund trustee is one of the issues and things that don’t make sense in the existing regime. The duty to exercise your powers in the best interests of your members, which is in the SIS Act [Superannuation Industry (Supervision) Act 1993], and it is a trustee duty, is a duty to act for a proper purpose not to have a conflict to act in the interests of your membership as a whole.
“The current best interests duty for giving advice applies to the individual member. If the trustee is giving advice, that duty is owed to the individual,” she continued.
“How does the trustee reconcile a duty to act in the best interests of the members as a whole with the duty to act in the best interests of the individual member when giving them advice?”
In her final QAR report, Ms Levy explained this conundrum, noting that under the SIS Act, a superannuation fund trustee is obligated to prioritise the financial interests of its members and cannot have competing fiduciary obligations except when giving personal advice to a member. When giving advice, the trustee must reconcile their duty to act in the best interests of both the individual member and the members as a whole, a conflict that is not addressed in the current law.
To fix this, she suggested the introduction of a duty to give good advice, which she said, “does not mean ‘okay advice’ or ‘good enough’ advice — it means what it says”.
“It is unlikely to be good advice to recommend a poorly performing superannuation product. It will not be good advice to recommend that a person who is unable to pay their mortgage open a term deposit and it will not be good advice to recommend a life insurance product that does not provide the protection the customer needs,” Ms Levy outlined in the report.
The QAR reviewer has since been criticised for seemingly exempting super funds from the duty to act in clients’ best interests. However, speaking on the ifa live webcast, Ms Levy explained that implementing the good advice recommendation from the QAR final report would actually help increase protections for consumers.
Referring to the current law as “a bad law”, Ms Levy said “it’s not fanciful” to think there’s conflict in a situation where a trustee is asked to reconcile a duty to act in the best interests of the member body as a whole with the duty to act in the best interests of the individual member.
“It’s not possible to reconcile those two things. Really, this conflict between the two duties is ignored in the current law and it’s just a bad law,” Ms Levy said.
“In my view, in terms of thinking about the proposals, what a trustee would need to do is they would say, ‘is it in the best interest of my members as a whole for me to be in the business of giving advice to individual members?’
“If the answer to that is yes, then off you go. You’ve satisfied your best interests duty, and then you will have a good advice duty each time you give advice to an individual. There’s no need to think about conflicting interests duties in that case.”
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This article is why lawyers should not teach ethics.
Super does need a leg up objective advisers do, no intra fund carve out for them, add fasea and ever increasing regulatory fees combined with crippling red tape, maybe start there.
What’s wrong with super funds giving members relevant and targeted information? Why do they have to give advice?
I am often confused around what is right and what is wrong around the servicing of super by organisations within the financial services industry. There are various forms of bias depending on who is providing advice. In simple terms, the platforms effectively provide some form of service and therefore advice to an individual using their product to optimise their asset. Theoretically if the Trustee knows of a better product solution for their individual clients, they should either improve their service or advise their client base of the better performing product. From an adviser’s viewpoint, there is either holistic advice or personal scaled advice. The regulator is focused purely upon creating standards and controls around holistic advice and make no distinction for personal scaled advice (aka limited advice). This in itself creates a regulatory hurdle for advisers intent on personal scaled advice only.
Banning adviser remuneration for providing insurance advice in Default Employer Super funds has proven to be a complete disaster for consumer/fund member service support. So much for “good advice”. It’s a complete joke.