Any new measures to improve member protections in the superannuation system must focus on misconduct, conflicted distribution, product governance and enforcement gaps rather member choices, super vehicles or platform structures, the SMSF Association has stated.
The industry body made the statement in a submission to Treasury as part of a government consultation looking into the funding of the Compensation Scheme of Last Resort, super fund member protections and better regulation of lead generation activities following the failures of the Shield and First Guardian master funds.
The association stressed any reforms to further protect members should be focused on the source of harm and not adding additional steps into the process of switching superannuation funds.
“Recent events appear to involve an interconnected chain: lead generation, conflicted advice, superannuation switching, platform or trustee governance and managed investment scheme (MIS) failures. Each link should be assessed according to its role in the loss,” the submission stated.
“A reform that adds friction at the point of switching will not necessarily address the conduct that occurred before the member made the decision.
“Similarly, rules aimed at platforms or SMSFs will not address poor governance of the underlying MIS or inadequate supervision of a licensed financial adviser who recommended the investment.
“Reforms that restrict switching, characterise particular structures as inherently risky or reduce access to advice may treat the symptoms rather than causes.
“A member’s decision to establish or roll over to an SMSF should not be made more difficult merely because some consumers have previously been advised to use an SMSF or platform as a pathway to a problematic underlying investment.”
The submission also rejected any form of mandatory waiting period being introduced for superannuation switching.
It stated this would delay legitimate licensed advice, increase costs and create friction without preventing misconduct that occurs prior to the switch, while scammers and dishonest operators would adjust their processes to factor in a waiting period.
The association added that if notifications were to be added for consumers switching to a platform or SMSF, those should be neutral, factual and regulator designed.
“For SMSFs, the notification should explain that members take on trustee or director responsibilities, including obligations relating to investment strategy, record-keeping, annual audit, tax and regulatory compliance,” it said.
“It should also explain that members should consider costs, trustee responsibilities, insurance implications, estate planning and the need for appropriate licensed financial advice.
“The notification should not imply that switching to a platform or SMSF is inherently inappropriate or higher risk. It should support informed choice by explaining practical differences, responsibilities and risks.”
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason