The Royal Commission concluded its public hearings last November, and Commissioner Hayne handed his Final Report to the Federal Treasurer in February this year.
The Commission was set up to inquire into misconduct into the financial services industry, and examined the conduct of banks, superannuation funds, financial planning companies, insurers and regulators.
Commissioner Hayne’s final report
Commissioner Hayne delivered a comprehensive report which summarised the evidence presented and drew firm conclusions about reforms needed in various parts of the financial services industry. His main emphasis was on ensuring that the boards and senior management of organisations performed their governance duties effectively, and that the industry regulators acted with more assertiveness to ensure this took place.
He stressed that a key requirement for Australian Financial Services Licence holders was that they deliver services efficiently, honestly, and fairly – and that it was up to these businesses to ensure their systems, processes, and governance arrangements were structured to ensure such outcomes.
Recommendations impacting superannuation
The Final Report included 76 recommendations applying to various parts of the financial services industry.
Some of the recommendations likely to impact First State Super are as follows:
(i) restrictions on deducting financial advice fees from super accounts
- many fund members who seek financial advice have the costs for that advice paid from their super account. This recommendation seeks to restrict that option and have members pay the fees out of their own pocket.
We feel it is important for all Australians to have access to quality advice at a reasonable cost. We are carefully reviewing this recommendation to determine its potential impact on our members.
(ii) one default account
- this measure seeks to ensure members have one ‘default’ account for their super savings (unless they voluntarily choose more than one). This would remove the frequent problem of an additional account being opened at the time of commencing new employment, which has the effect of eroding a member’s overall super balance.
We are supportive of this measure given the negative impact on super savings caused by multiple accounts, and would like to see that members are ‘defaulted’ into lower cost, higher performing funds.
(iii) accountability recommendations
- Commissioner Hayne recommended various new accountability and disclosure recommendations for super funds, and the introduction of new penalties for super fund trustees who do not comply with their obligations.
We support these recommendations as they will encourage greater compliance with relevant laws and be a disincentive to misconduct.
Where to from here?
The Government and the Opposition have both issued responses to the Final Report. Both sides have said they will endorse the recommendations and support legislation to implement them. Given the upcoming federal election, however, there is significant uncertainty as to when and how individual recommendations may be legislated. Two measures were introduced to Parliament in February but are yet to be formally ratified.
First State Super will continue to assess the Royal Commission’s report and implement changes to our business where necessary. As we indicated at the time it commenced, we support the Royal Commission process, and welcome any initiatives that improve accountability and transparency, and lead to better outcomes for our members. We will keep you informed of further developments as they occur.