SMC’s pointed recommendation to ASIC

Major industry superannuation funds lobby group, Super Members Council (SMC) is encouraging the Australian Securities and Investments Commission (ASIC) to distinguish between fund trustees and fund “promoters” when dealing with conflicts of interest.

If ASIC were to follow the SMC’s recommendation, it would serve to more specifically define the relationship between some retail superannuation funds and related service providers.

The SMC has responded to ASIC’s consultation around its proposed update to Regulatory Guide 181 dealing with Managing conflicts of interest by seeking to have the regulator adopt a scenario specifically separating the roles of trustees and “promotors”.

Its proposed scenario states from the outset that “the promoter of a superannuation product is a separate entity from the trustee”.

The SMC propose scenario then adds: “The promoter has a commercial interest to maximise fee revenue which conflicts with the trustee’s best financial interests’ duty to members”.

It then suggests that ASIC describe the “potential negative outcome as being:

“The promoter makes recommendations for excessive or unnecessary product fees to members based on its own costings which are influenced by its commercial interests. The trustee adopts the recommendations without taking adequate steps to recognise the potential conflict of interests and suitably assess and challenge the recommendation”.

The SMC response to ASIC follows on from submissions it has made to the Australian Prudential Regulation Authority (APRA) in which it supported the publication of profit payments to “related service providers”.

“Profit payments reduce financial outcomes for members and these payments should be publicly disclosed, and funds required to demonstrate they are in members interests,” it said.

“These payments may reflect inflated costs some funds pay to their related party service providers, to the benefit of these providers (or a common ultimate parent company) and to the detriment of members who bear the cost of higher fees and lower returns,” the SMC told APRA