The Financial Services Reform Act (FSRA) looks set to result in further compliance and legislative costs to superannuation funds offering member investment choice, warns an industry expert.
BT Financial Group senior vice president Dean Thomas says under section 1012ia of the FSRA, a fund that offers member investment choice is required to provide members with a Product Disclosure Statement (PDS) prior to switching between investment choices.
“This cuts across all areas of wholesale superannuation and treats superannuation funds like Investor Directory Portfolio Services (IDPS).
“It will be extremely costly and time consuming for trustees to review all their investment options to allow the switching process to now comply with this provision, which is truly designed for custodial arrangements, not trustee arrangements,” Thomas says.
He says there has been no previous requirement to provide a PDS, as superannuation funds are wholesale investors and the trustee is the one making the investment decision and putting the investment strategy on the menu.
However, according to Thomas, the problem is that most funds have structured their arrangements to comply with regulation 402 of the SIS Act, which requires that they provide members with sufficient information to understand the risk and return about the investment prior to making the decision to switch. This has been achieved through annual reports, member statements, information packages and Web sites.
Thomas believes that Treasury has got it all wrong because it does not realise that superannuation is not a custodial function.
He argues against this ruling, noting if there was a deficiency in regulation 402 of the SIS Act, he has not heard about it and neither the Australian Prudential Regulation Authority or the Australian Securities and Investments Commission have made any announcements.
While the decision was meant to take effect immediately from March 11 this year, lobbying by the Investment and Financial Services Association (IFSA) has managed to have it deferred until March 11, 2004.
Thomas is chairman of IFSA’s FSRA working group committee and says this committee will lobby Treasury in September when it starts its review. It will also provide a report outlining why the status quo should remain in place.
He suggests that superannuation funds write to Treasury asking for the changes to not be adopted. His committee will also approach the Association of Superannuation Funds of Australia to participate in a joint submission, because the ruling will affect industry and corporate funds.
—Sarkis Khoury
