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Unravelled: Superannuation – 'not a product to be sold'?

18 March 2019

Written by Senior Regulatory Counsel Michael Mathieson

In his typically blunt way, Commissioner Hayne declared: 'Superannuation is not a product to be sold'. As Mr Hodge QC was fond of saying, I would like to 'tease that out' a little.

Making a profit

What, exactly, did Commissioner Hayne mean? He did not mean that superannuation trustees cannot make a profit, as he specifically concluded that a superannuation trustee can make a profit while still complying with its duties to fund members. Indeed, to the extent that the benefits of scale are passed on to members, it may well be in the interests of existing members for superannuation products to be sold to prospective members.

So, if superannuation trustees can still make a profit, what does it mean to say superannuation should not be sold? To answer that question, it is necessary to consider two of the Commissioner's recommendations: the hawking recommendation, and the 'treating of employers' recommendation. The recommendations are aimed at dramatically reducing, if not entirely eliminating, the sale of superannuation to individuals and employers respectively.

Hawking

The existing prohibition on hawking financial products already applies to superannuation. However, Commissioner Hayne was not satisfied it was working effectively. He has recommended a greatly expanded version of the prohibition, under which, it seems, all forms of unsolicited selling of superannuation to individuals would be outlawed. The only boundary on this contemplated by the Commissioner is that 'advertising generally' should continue to be permitted. If the recommendation is faithfully implemented, then a great deal is going to turn on those two words. A TV advertisement would count as 'advertising generally'. But what about messages conveyed in much more restricted situations, such as the 'member only' part of a website?

Commissioner Hayne does not seem to be suggesting that, in the absence of personal advice that the acquisition of the product is in the client's best interests, superannuation can never be 'sold' to an individual. However, the scope to do so, in his mind, does not seem very large.

Treating employers

Should we thank Commissioner Hayne for inflicting the slightly antiquated word 'treating' on those labouring in the field of superannuation in 2019?

Whatever the merits of the terminology, the proposed new section 68A of the SIS Act, passed by the Senate in February and likely to be passed by the House of Representatives in April, is a tough measure and will not be easy to apply. The core principle is easy enough to state – a superannuation trustee and its associates must not supply goods or services to an employer-sponsor or a prospective employer-sponsor if that good or service could reasonably be expected to influence the recipient's choice of default fund. There is more to it than that, but that is the essence of it.

The harder part will be applying it. What does, or does not, make a difference to an employer's decision-making? If there is a base level of service provided by all trustees operating in the corporate superannuation market, how could that base level of service exert influence of the relevant kind? If the greater risk is associated with goods and services that are, somehow, 'special', how material or significant do they need to be in order for the ban to apply? Can one lunch at a decent restaurant really make a difference?

Conclusion

The only thing I am sure of is that selling superannuation in the future is going to be much harder than it was in the past. Think the hawking and treatment recommendations. Think the proposed product design and distribution obligations, and the proposed product intervention power for ASIC. And think the 'efficiently, honestly and fairly' obligation for AFS licensees becoming a civil penalty provision.

Please don't shoot the messenger.

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