Retail Superannuation Post the Royal Commission

Retail superannuation needs to address profit making by a fiduciary. This paper discusses insights about a business model appropriate for superannuation post the royal commission.

Introduction and Purpose

Post the Royal Commission what are the implications for how a retail superannuation fund Trustee should operate a fiduciary business?

This question arises given the prominence of retail funds as the subject of Royal Commission criticism and commentary. Of note, retail funds also are a key component of the Australian superannuation system and represent approximately one third of all superannuation moneys in Australia regulated by the Australian Prudential Regulation Authority.

This note does not address questions of pricing or product or organisation. Rather the note considers the more fundamental question of what a retail superannuation fund should be and how it should act to realise the normative nature and purpose of that role.


In my opinion there are three critical inter-related components that reflect how superannuation trustees need to conceive their role and how they conduct their businesses to be successful post the Royal Commission. These components are set out below in order of importance:

  1. The “social licence conditions” require superannuation trustees are compliant in two vital respects. They must: a) act and be seen to act in the “best interests” of members; and b) prioritise and be seen to prioritise member interests in situations where possible conflicts of interest or duties arise.

  2. The role and purpose of the Trustee needs to reflect that of “trust”. This goes to both the “trustworthiness” of the Trustee as well as the experience of “trusting” of the Trustee by the member.

  3. There should be monitoring and ongoing assessment in respect of both of these foregoing components (“social licence” compliance and “trust”).

Social Licence and Compliance

The compliance arrangements for a superannuation trustee need to reflect and ensure compliance with a significant range of fiduciary obligations. The most critical of those go to adherence to the Trust Deed; exercise of powers for a proper purpose; acting in the best interests of members; and avoiding or managing conflicts of interests (including in particular, prioritising member interests over all others interests).

Compliance arrangements need to be clearly understood and monitored by directors. That goes necessarily to understanding all of: relevant obligations; business processes intended to deliver outcomes compliant with those obligations; the controls that attach to those business processes that ensure the compliant outcomes; testing and monitoring to ensure the controls are appropriately designed and in operation; assessment and reporting after testing of controls of any (and to what degree) non-adherence to obligations that may exist across various scenarios; and subject to assessment as to adequacy and appropriateness, further amending any of those processes, controls, testing and/or reporting.


The role of fiduciaries requires they act in circumstances where beneficiaries (often vulnerable) rely upon their decisions, actions and omissions. That reliance in based upon an expectation that 2 the Trustee understands that reliance and is a worthy recipient of that reliance by the beneficiary. That the Trustee can be trusted and relied upon to properly perform their role and duties both as a perception and in fact. Properly considered the purpose of the Trustee is “trust”. Any business model for a fiduciary in a “for profit” context needs to reflect that purpose.

Trust goes to the relationship between the trusted and the trusting. The Trustee needs to be “trustworthy”. The beneficiary needs to be “trusting”. Both elements need to be present for trust to arise.

At one level trust can be assessed as reliably meeting expectations. Clarity in articulation and agreement about expectations will drive alignment in understanding and provided those standards are met, will necessarily avoid disappointment in not meeting those expectations. Clearly all parties need to be clear in articulating those expectations. That needs to go to both what is involved and the experience of the recipient with the Trustee meeting those standards. It should also go to what happens if those standards are not met – including communication, experience and compensation.

Drivers of Trust

Current thinking around the drivers of the phenomenon of “trust” point to four aspects, the first three enhancing trust and the fourth and final eroding of trust. The drivers go to both “trustworthiness” and well as “trusting”.

The four drivers are:

  1. Credibility. This is based on truthfulness and credentials. It is reflected in words. It is a rational assessment. It manifests in statements like: “I can trust what she says about...”

  2. Reliability. This goes to dependability and predictability. Again, it is a rational assessment based upon prior experience and revealed in keeping promises. It manifests in statements like: “I can trust him to....”

  3. Intimacy. This reflects discretion and empathy. More emotional, an outcome from feeling secure and things are transparent. Respecting and engaging the humanity of the beneficiary such that the person feels safe to talk about difficult subjects. It manifests in statements like: “I can trust her with...”

  4. Self-orientation. Goes to motives and attention. Again, it is an emotional assessment reflecting the experience or expectation of the beneficiary that the Trustee will care or focus on its’ perspective or the perspective of others, not the beneficiary. It manifests in statements like: “I can trust that he cares about ..(himself/other than me)”.

Monitoring, Assessing and Acting

Having considered the nature of the “social licence conditions” and how “trust” is conceived and the drivers of trust, the Trustee needs to realise those components appropriately. This requires measurement, monitoring of how key features or characteristics are performing, and assessing what further action needs to be taken if any.

The social licence conditions require a Compliance Plan. That Plan needs to be assessed as to adequacy of design and operational effectiveness. That should follow normal compliance related methodologies for assessment and testing. That assessment should be carried out regularly. 3 The drivers of trust also should be monitored, tested and tracked. The drivers of “credibility” and “reliability” can be subject to relatively fact based assessment and judgment. The drivers of “intimacy” and “self-orientation” are more difficult to assess and require perceptive engagement and a real listening to members. That can be achieved in the first instance with some self-assessment conducted from the perspective of the board and then management. Member surveys focussing on these components could be used also. Further, a review of complaints data from the lens of the “trust drivers” could provide useful insights. Trend analysis over time will yield insights as to changes in performance as well as the impact of external or contextual factors.

Concluding Comments

The successful performance of a Trustee must importantly reflect any social licence conditions to perform that role as well as being true to the purpose of the role. Key to the purpose of the role is “trust”. The drivers of trust can be understood in addition to transparency and meeting clear and agreed expectations. These drivers include aspects of “trustworthiness” and “trusting”: credibility; reliability; intimacy (all trust enhancing); and self orientation (trust eroding). Trustee Boards should regularly assess and monitor their effectiveness and performance in all these respects. Only then will directors have confidence that they have addressed in part the criticism and commentary directed at retail superannuation fund Trustees by the Royal Commission.

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