Preparing the Super Trustee Board for 2024
As 2023 draws to a close it is timely for Super Trustee Boards to consider scheduling the most important current business issues into Board and Committee meeting agendas for 2024.
Given the challenging economic conditions expected for 2024 and 2025, member experience, fund performance, regulatory compliance and good governance have never been more important. Chairpersons and CEOs will be ensuring that the annual cycle of usual Board agenda items does not drown out non-cyclical key priorities.
Our shopping list of key priorities for 2024:
- Investment performance
- Members’ access to financial advice
- Disclosures to members, take sustainability as a test case
- Cyber security and technology resilience
- Competitiveness of insurance cover for members
- Member account consolidation
Early bird catches the worm
An early priority should be the investment performance of each of the fund’s options. Whilst passing the YFYS performance test is critical, it would be timely to review the fund’s hedging policy and practices. With the Australian dollar trading at USD lows not seen since October 2022 and March 2020, and funds generally increasing their exposure to international assets, a review of hedging policy and unlisted international asset valuations on which hedging positions are referenced would be prudent.
High quality financial advice- harder than it looks
A second business priority for 2024 is members’ access to financial advice. The first of the Bills to implement the Tranche 1 of the Government’s response to the Qualify of Advice Review was released this month and it addresses key super fund priorities, including the benefit of allowing members to pay financial advice fees from their accounts and simplifying member consent processes connected with advice. We can expect further Bills in the coming year that should simplify the advice process for fund members. With the current shortage of advisers and the complexities of making advice readily available to members, it is important to not delay how advice will be addressed.
Full and Frank: disclosure to members
The ASIC Chair singled out member outcomes in the superannuation sector as a headline priority, highlighting enforcement focussing on:
- poor design, pricing and distribution of financial products;
- insurance failures; and
- the protection of vulnerable consumers.
An end to end review of processes for disclosures to members and prospective members would be useful, using ESG as the subject matter, including the process of identifying and executing an ESG investment, the disclosure due diligence process for PDSs and for marketing releases including social media. This review may consider the methodologies used by the investment team to evaluate risk, return and duration, how to lock in and uplift ESG considerations over time into different investment vehicles. An important verification of the due diligence of disclosure of ESG features of funds is that the business units involved in preparation of disclosing the features required by ASIC’s Info Sheet 271 are sufficiently familiar with the details and matters required to be disclosed. A Board should also be comfortable that the underlying ESG related policies and procedures are sufficiently sophisticated for current expectations and are in practice implemented by the business.
Cyber security and technology resilience
Arguably the biggest and fastest moving governance issue to emerge this year is the management of cyber security and technology resilience. We have seen some particularly difficult and pervasive cyber security failures and related privacy breaches. At the recent ASFA conference, APRA highlighted the importance of trustees managing their exposure to these risks. It is suggested that Boards ensure that they understand the strengths and vulnerabilities of their cyber security and technology systems and have ongoing programs to protect against threats.
Ensuring your Insurance and Claims Handling hits the mark
Insurance has caused headaches for funds recently: consider the competitiveness of the covers offered, when premium freezes are set to expire and claims experience. The Board should plan how it will oversee the optimal design of the program having regard to the latest developments in member cohorts and future needs. A Board presentation by the incumbent tends to focus the mind for insurers, including the timing of the next tender, which should assist the Board to set the direction of the program renewal.
The Board may also benefit from a briefing or workshop on how the Fund is dealing with member applications for early release, insurance claims and death benefit payments for members with and without insurance. This could be undertaken in conjunction with an assessment of the Fund’s complaints management and the outcomes of matters referred to AFCA, rolling up a member experience assessment at critical times of members’ lives.
Crash bang: account consolidation
ASIC recently initiated civil penalty proceedings concerning member account consolidation alleging that members’ duplicate accounts had not been consolidated consistently with the SIS requirements. That sends a signal to Boards to review processes for consolidating member accounts across products. This may be seen as a somewhat mechanical exercise, however setting rules to consolidate member accounts can involve some challenging fiduciary considerations, for example where a member has been advised into multiple accounts or if insurance attaches to accounts. Review and refreshing the analysis of the options given to member cohorts, such as ‘opt out’ and ‘opt in’ consolidation procedures, is recommended in light of the strict liability that attaches to a breach of the consolidation obligation.
A focus on opportunities to enhance investment returns and ESG credentials as well as effectively deliver quality core services to members should be particularly valued in the coming economic conditions of 2024.