The Royal Commission final report has called for trustees to be prevented from assuming any other obligations related to the superannuation fund, while also finding that the ‘Fox in the henhouse’ campaign did not amount to misconduct from industry fund trustees.
Commissioner Kenneth Hayne said that trustees of registrable superannuation entities (RSEs) should be prohibited from assuming any obligations other than those arising from or in the course of their performance of the duties of a trustee of a superannuation fund.
“The moment a trustee tries to wear two hats, conflicts will arise,” the report said. “The duties the trustee owes to members of the superannuation fund are not the same as the duties it will owe as responsible entity of a managed investment scheme and the duties will be owed to two different classes of members.
“Conflicts of this kind only arise because a trustee undertakes the obligations of responsible entity. Taking on those obligations may be seen as yielding some commercial convenience for the group of companies concerned.”
Speaking directly on retail funds’ obligations, Hayne said that a trustee of a retail fund can meet their best interests duties to clients, but that the essential conflict they face between their obligations to the beneficiaries and the profit of the parent company must be better considered.
“Trustees can fulfil their duties to members only if they recognise that the interests of the fund’s parent company and the interests of members are not only different but are often opposed,” the report said. “Regulators must be astute to observe whether trustees are giving priority to the interests of members.”
Hayne also said that industry fund trustees could also face conflicts of interest between the interests of members and those of shareholders or nominating organisations.
While some during the Commission hearings pointed to the ‘Fox in the henhouse’ advertising program as an example of this however, Hayne said that he didn’t believe the conduct of the trustees involved amounted to misconduct, that the conduct fell short of community standards, or that rules needed to be made prohibiting funds from engaging in political advertising.
“Rather, I consider that the existing rules, especially the best interests covenant and the sole purpose test, set the necessary standards. Those standards should be applied according to their terms and without more specific elaboration,” Hayne wrote.
The report also raised issue with the best interests duty itself, showing concern that “the conduct examined by the Commission, and submissions made by trustees, suggested that some trustees had difficulty understanding when and how the covenant applied”.
“It should be concerning to regulators that professional trustees apparently struggle to understand their most fundamental obligation,” Hayne wrote.