Push to make superannuation fund group mandates transparent

Core elements of the financial planning industry are calling for greater regulatory scrutiny of the contractual arrangements underpinning the multimillion dollar group insurance mandates negotiated by superannuation funds.

A Money Management investigation has confirmed the negotiation of some of the largest group insurance mandates in the superannuation industry have involved both 'profit sharing' arrangements and 'rebates' that have flowed back to the superannuation funds and which are not always reflected in the Member Expense Ratio.

Money Management understands the rebates are most often based on the difference between the premium actually paid by the superannuation funds and the cost of claims in any given year, with some arrangements providing for a guaranteed percentage return to the fund.

Some of the larger group insurance mandates have seen superannuation funds paying premiums in excess of $100 million in one year, meaning profit sharing or rebate arrangements are calculated in millions of dollars a year.

Considerable differences exist between mandates, with some superannuation funds opting not to pursue such deals.

While comparisons have been drawn between the commercial structures surrounding group insurance and the volume rebates paid in the financial planning industry, it is being argued the group insurance rebates and profit share arrangements cannot be compared to the volume rebates because they are usually based on a return of excess premium.

However, both the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) are arguing for a level playing field and greater transparency.

FPA chief executive Mark Rantall said his organisation had accepted the removal of conflicted remuneration structures and greater transparency, and this should occur in equal measure with respect to superannuation.

"Superannuation fund members should have equal rights with other consumers, so there should be total transparency with respect to commercial arrangements and payments within group insurance mandates," he said.

AFA chief executive Richard Klipin echoed Rantall's sentiments on the need for a level playing field, and said it was time to acknowledge that superannuation represented one of Australia's largest industries, involving significant commercial arrangements.

"The financial planning industry has been subject to demands with respect to transparency, and in the interests of a level playing that needs to be extended to all sectors of the market," he said.

Rantall said he believed total transparency was required across the financial services industry, and that this needed to be equally applied to profit share or rebate arrangements with respect to group insurance.