A UNSW academic says subjecting superannuation funds to "best financial interest duty" instead of just "best interest duty" is not material, but BFID's flow-on effects will be concerning for trustees.
University of New South Wales director for centre of law, markets and regulation Scott Donald made the point at public hearings held by economics legislation committee in Sydney this morning.
The hearings relate to Your Future, Your Super reforms currently before the parliament. The bill includes a proposal for superannuation trustees to be subjected to "best financial interest", which funds have almost unanimously rejected.
"I don't believe that change [including the word 'financial'] will fundamentally change the substance of the law, substance of the duties, [and] what actually is required of the trustees in respect of that," Donald said.
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"It does change the salience of that financial aspect. I think any trustee in the country asking a legal adviser, 'What does best interest mean' would be told instantly that it means best financial interest.
"That is the way the case law is there but it's not written in the statute. So by having it in the statute it is impossible to ignore that. Those without a deep understanding of the trust law would not miss the reference, [and] would not misunderstand it. That said, I don't think that particular insertion changes the substance of the law."
However, BFID would hold super trustees responsible for keeping records of their decisions and proving the decisions they make are in member's best financial interests.
These two are much more substantiative issues, than the inclusion of the word "financial", Donald said.
When asked by the committee if the legislation gave the Treasurer room to stop a fund from investing in coal or windfarms, Donald said it was hard to tell without seeing the legislation.
"Without seeing the regulation, I would be surprised if that was an outcome that was possible. This is the problem that we haven't seen the regulation and the way they will be framed," he said.
Donald worked in funds management research, including at Russell Investments prior to joining UNSW. He has consulted for retail and industry funds, and a law firm while working as an academic.
The Your Super, Your Future reforms, which also include stapling and the new underperformance test, are yet to be voted on. The government has proposed a July 1 go-live date. The economics legislation committee will hand in its report on April 22.