In the wake of the ongoing Royal Commission, Productivity Commission Report into Competition and Efficiency, and the pending Protecting Your Super reforms, key decision makers in financial institutions will need to revisit their understanding of what best interests of a member or client really means – even if their salary to date has been dependant on not understanding it, says Mr Jonathan Steffanoni, Principal Consultant, Legal & Risk, QMV.
“The term best interests is thrown around so much in the superannuation sector, that we’re at risk on forgetting what it actually means. Best interests in a fiduciary relationship such as a trustee or adviser has a specific meaning.
“Best interests is not a complex concept, it simply requires that where there are diverging interests, the interests of the member or client must be prioritised. This is more than paying lip service that customers come first; rather, it is conduct and structure which actively prioritises their interests.”
Mr Steffanoni says Commissioner Hayne demonstrated that point in the early hearings of the Royal Commission, illustrating the binary decision faced by financial institutions between prioritising consumer outcomes over commercial outcomes or profits.
“The correct answer to the question in a fiduciary context isn’t a balancing act, but always the pole representing consumer, member, or client outcomes.
“Best interests also requires prudence, which is an equally simple concept. It requires that those responsible for managing other people’s money are capable and competent to manage their money to the standard of care that the community has a right to expect.
“This means having appropriate systems and structures in place to ensure that risks are quickly identified, readily assessed, and diligently managed. It also means at the very least that Other People’s Money is managed in accordance with the product terms and conditions, and laws that fiduciaries are required to abide by.”
He says that the prudent management of Other People’s Money requires that superannuation trustees strike the long-term balance between performance and costs. It also ensures the commercial arrangements in supply chains are the best available, that opportunities to promote scale efficiency through consolidation are seriously considered, and that claims and complaints are dealt with fairly and efficiently.
“While the Royal Commission hearings may be the theatre through which the public can view the shortcomings of the financial services sector, the reality is that this is a time of change.
“The rebuilding of trust in financial services will require strong leadership in adopting new laws, revisiting commercial models, and investing in emerging technologies which institutionalise accuracy, transparency, and maximise the probability of the best outcomes for clients and members,” Mr Steffanoni says.
QMV was founded in 2008 and provides trusted and independent consulting services and technology systems to superannuation funds, trustees, administrators and wealth management organisations.
Its services focus on successfully managing change across technology, regulatory change, data quality, data remediation, migrations and mergers.
Its products include Investigate, an automated data quality management solution used to validate data for millions of accounts. The technology manages data for over 10% (and growing) of Australia’s total superannuation balances.