From DDO to FAR: What’s Shaping Superannuation’s Future Right Now

Neil [00:00:02]:

Welcome to that super show, the podcast where we talk all things super from the inside. I'm Neil Benson, CEO of Superware.

Sarah [00:00:09]:

And I'm Sarah Penn, CEO of Mayflower Consulting. Each week we unpack what's changing in the industry, what funds are wrestling with, and how tech and regulation are shaping the landscape.

Neil [00:00:19]:

Sometimes we bring in expert guests, but mostly it's just us having a real conversation about how super is working and what could make it even better.

Sarah [00:00:27]:

Let's get into. I'm definitely back on my feet, roaring and ready to go as always.

Neil [00:00:38]:

Good, good.

Sarah [00:00:38]:

Still drinking decaf coffee though, because really, do you want to see me with full strength coffee?

Neil [00:00:45]:

I'm a kind of four cups a day kind of person, so none this afternoon, but you'll have to take it as it comes. What's been happening in superannuation sector over the last couple of weeks?

Sarah [00:00:54]:

Well, interestingly, not much has been happening actually. It has been quite quiet on the news front, Parliament has been sitting but they've been very qu and we have no idea what they're up to. There hasn't been any new relevant policy or anything. Legislation tabled as far as I'm aware. So we'll just have to wait and see.

Neil [00:01:13]:

I was waiting for Payday Super. We have some draft legislation published last year. I was hoping that was going to get tabled, but it's all quiet on the Payday super front, even though it's supposed to take effect I think from the 1st of July next year. Be nice to see some legislation first.

Sarah [00:01:29]:

Yes. Similarly, I would like to see some of the quality of advice review legislation finally coming in because God knows we need it. But look, you know what has landed is AFCA have released a report about complaints over the last 12 months. You've done a bit of research and reading.

Neil [00:01:49]:

I've been digging into this. Yes. I'm waiting patiently for the AFCA data cube to be refreshed. I think it's twice a year. So yeah, we're waiting patiently for all the details, all the firms and all the EDRs for each firm in the sector. But there's some news headlines they published. So overall complaints about financial services firms are down 4% from about 100%, 4,000 to just over 100,000 in the last financial year, which is good, I think. Direction.

Neil [00:02:14]:

That's awesome.

Sarah [00:02:14]:

Yes, definitely.

Neil [00:02:16]:

For the superannuation funds, complaints are down 16% which is amazing. Wow, that's good. And in particular I was really impressed. Complaints about claims handling in superannuation down 39% which is amazing. So maybe there was a huge backlog last year. Funds are doing a good job of getting on top of that and complaints are down as a result. So well done to everybody who's been handling all of those complaints and the claims associated with some of those complaints as well.

Sarah [00:02:42]:

Yes, I couldn't agree more. And in fact I'm told, I'm reliably informed that Stephen Jones, the now ex minister, his recent, like last year's focus on superannuation and death, claims handling and what have you, is off the back of the complaints numbers coming out last year.

Neil [00:03:02]:

Ah, there you go.

Sarah [00:03:03]:

And being all a bit not good. Yes, yes. And that's sort of what's tipped all this off. So much as we all like to complain about regulation and reporting and all the rest of it, in this case, one might say from the punter's perspective that the focus has been a good thing because clearly things are running better. Yeah, if you're a poor bastard working in complaints, maybe not so much.

Neil [00:03:25]:

Maybe not so much at all. There are other areas of financial services sector where complaints are up slightly, I noticed, in general insurance investments and advice. So we're not all out of the woods, but. But generally the overall landscape's a slight improvement and especially in superannuation. So, yeah, that's good news. I also noticed there weren't many superannuation funds in the headlines recently, but Insignia Financial in the headlines twice. Both relatively, I think, good bits of news. They have completed the transition of an outsourcing arrangement to SS and C Technologies, which has involved the transfer of hundreds of people from the operations team over to SS and C Technologies.

Neil [00:04:00]:

So congratulations to everybody involved in that. I hope it's all going smoothly. And the private equity firms that were swirling around Insignia have landed with a bid, a winning bid from CC Capital, which I think the board of directors of Insignia has recommended to its shareholders. But that deal probably will not close until early next year. So it's going to take a while.

Sarah [00:04:20]:

That is a long time. I've been involved in a number of re transitions, actually responsible entity transitions for managed funds and it does take a long time between even with that, which is a much smaller deal than this is. It takes a long time to go from the directors to that. It's a good idea. And because they're private companies, it doesn't have to be announced to the world, to then deciding to do the vote, to then holding the vote and then finally getting the transition through.

Neil [00:04:45]:

So is there a regulatory approval that has to happen before the shareholders get to vote or is it the other way around? I'm not sure.

Sarah [00:04:52]:

I think you would start talking to the regulators long before you spent a squillion dollars on a vote. Yes, in this case the regulator is the accc, which we don't talk about so frequently in superannuation because everyone el policies all over us.

Neil [00:05:09]:

Yeah, well, we should, you know, drag the Minister for Financial Services onto the show and ask. But I imagine he's busy writing some legislation right now, so let's leave.

Sarah [00:05:17]:

Oh, I hope so.

Neil [00:05:18]:

Let's leave him to it.

Sarah [00:05:21]:

The other thing I've just been thinking about is there's so much legislation going on at the moment, I thought we could talk about some legislation. And one of those which is came in in 2021, which is the design and distribution obligations or DDO and it came with it, this sting in the tail called pip, which is product intervention powers, which gave ASIC the right to tell any financial services company, including superannuation, to take their product off the shelves, which is called a stop order. And ASIC have been going around and throwing out stop orders like kids at a party. So there have been numerous. And if you're the poor person on the receivable poor company on the receiving end, they're very painful. So the design and distribution obligations are supposed to. The idea is that they are to stop financial services products doing harm in the community. And the concept of this is to move away from caveat emptor or buyer beware.

Sarah [00:06:14]:

And the reason for the move away is that it's not really reasonable, really reasonable for the average punter to fully understand how financial services work and because it can go, because they can so easily cause huge amounts of harm, as we've seen recently with the collapse of a couple of managed funds and, and some super. The idea is that each product provider, each issuer has to make an effort to design a product for a particular group or they say class of consumers and then you distribute it and you have to make sure that your distribution is in line with the target market that you have determined for your class of consumers. So when DDO first came out, asic and of course the fun thing that of course we need more disclosure as a result. So now we have these things called target market determinations, TMDs, they're published on websites, which of course means ASIC can read them. Asic started reviewing TMDs and they issued stop orders to quite a large number of product providers in superannuation, funds management and everything else, pet insurance, many others for stop orders and so, and this was to do with TMDs. So then each product provider had to go and rewrite their TMD until it was in a format that ASIC was happy with. A bit like having to rewrite your essay for the principal.

Neil [00:07:37]:

So it's not so much there's a problem with the product itself, but the way that the financial services firm was describing the class of consumer they were marketing the product to.

Sarah [00:07:47]:

Yes, that's correct. Yes. So that was stage one. Was ASIC using its favorite big stick to get people who weren't describing the target market and weren't writing a good tmd. Stage two, which we're currently in and.

Neil [00:08:02]:

Is as like the only people reading TMDs. Because I have a hard time reading PDFs, and I should, you know, when I'm going to buy something, I sometimes dig into the PDFs, but I've never read a TMD. I probably will never read a TMD.

Sarah [00:08:16]:

Bizarrely, TMDs are in some ways because they're a summary. In some ways they're actually easier to understand than a pds.

Neil [00:08:25]:

Okay.

Sarah [00:08:26]:

Because they're simpler, they're not as long and they set things out in a more formulaic way so they're easier to compare between products. They're supposed to be for the distributor to read. Ah, yes. The person who's selling the product is supposed to read the tmd, read the target market determination and go, oh, yes, this customer is perfect for this product or this customer is definitely not perfect for this product.

Neil [00:08:48]:

No pets, no pet insurance.

Sarah [00:08:51]:

Yes, that's what it is. Yes, yes. Of course, like all good legislation, there's massive carve outs. In this case, if you receive personal advice or if you're providing personal advice, then you can basically ignore the tmd anyway. That is a whole nother rant. I have written swathes of articles about it in case anyone is completely bored on a Sunday night and wants to trawl back through my website to 2021. So yes, we've had. We don't like TMDs.

Sarah [00:09:18]:

We're currently at. We don't like reasonable steps. Reasonable steps is the new wor word ever. Worst words ever. And the idea of reasonable steps is you have to take reasonable steps to make sure that the consumers are in the target market for the product. This is things like maybe asking them some questions before they come in or using other information that you hold about them to determine whether or not they're likely to be in the target market.

Neil [00:09:42]:

I don't even know what that means. Do you ask them their salary when they were born or do they want the product? Yes. Well, then you can. Then you're in the target market for the product. Yes.

Sarah [00:09:52]:

Well, this is the thing you're not allowed to ask them if they want because obviously they're going to say yes. So then what you end up doing in funds management is you ask things like do you need your investment to be liquid? Like do you need to be able to get the money out straight away? If they answer yes, and it's an illiquid investment, you should start to think long and hard before you sell it to them. If the next question is how do you feel about risk? Are you happy to wait five to 10 years before you take any money out? Because it'll take that long for it to, you know, not come good, but for it to do well, you know, for the long term gains to get past the volatility. If they say no. So now we've got they want short term and they want illiquid and you're selling them a long term illiquid thing, then you shouldn't sell them the product.

Neil [00:10:38]:

Yes.

Sarah [00:10:39]:

So ASIC is looking at what reasonable steps customers, firms are taking to knock people out of the application process that's current. And then where we think it's going to go next is ASIC will start looking at the distributor side of things. So if people are distributing your product, are they the right people to be distributing it? What checks and balances do you have? How do you know if they're doing the right thing? How do you know if they even are who they say they are? So the very basics, if you're going to say that one of your distribution ways you can distribute a product is via financial planners, then it's probably a good idea to check that. The person telling you they're a financial planner is, in fact, wait for it, Neil, a financial planner.

Neil [00:11:20]:

Well, what's her name? Melissa Cannock. She had.

Sarah [00:11:23]:

Yeah, well, exactly.

Neil [00:11:23]:

She had an afsl. It just wasn't hers. It didn't have her name on it. But the number matched the number of an afsl. So a little bit more due diligence than that.

Sarah [00:11:31]:

Yes, yes. So I think maybe we should check the next time you or I are flogging a financial product, Neil, we should definitely check the number and the name and check they line up. Yes. So anyway, we think that's probably where ASIC is going to go next and that's certainly where the FSC and other groups are looking at exactly what to do about it.

Neil [00:11:51]:

The other regulation that came into effect recently, Sarah, what's happening with the financial accountability regime? Far.

Sarah [00:11:58]:

Yes, near and far. God, there's been so many dreadful jokes by lawyers, which I of course laugh at because I think they're terribly funny so far came into account into. Into practice, came to life into effect. I can't think clearly. I do need to drink four coffees a day in the end of March. And again, we're back to those horrible words, reasonable steps. We hate reasonable steps in ddoland and we're going to hate reasonable steps in far as well. And the reason for that is you have to be able to demonstrate that you have taken reasonable steps to actually be accountable for something.

Sarah [00:12:31]:

So if you're an executive who is accountable for whatever part of the machine, you have to be able to demonstrate that you are taking reasonable steps to actually be accountable. So you can't just write on the bit of paper, oh, yes, Sarah's in charge of everything. Excellent. Sarah has to actually have processes, procedures, reporting all the rest of it in place. So Sarah can in fact prove that she is in charge of those things.

Neil [00:12:58]:

I think that's. That's good. We talked earlier on, in one of our earlier episodes, about directors lifting their game and being responsible members of the board. So this doesn't apply to board directors so much as the executives performing the management and leadership functions. So if I'm the chief marketing officer of a superannuation fund and PDSS is one of my responsibilities, I have to show that I'm accountable for the content of the PDS and its reviews and the team that updates it and the procedures and policies that go along with that.

Sarah [00:13:30]:

Yeah, that's exactly right. And interestingly, for some things like complaints, which is I know an area that you are passionate about, it probably already is a little bit more straightforward and can get more straightforward in terms of reporting because you can at least you can count the number of complaints, hopefully. Come on, team, everyone can. Can't they count the number of complaints and be able to report that and be able to show how many have been resolved in what time frame? And those sort of things, for things like PDS's, it actually gets really hard because you can go many years before you have an issue with the pds, but then it might blow up spectacularly and you might be facing a multi million dollar fine in practice.

Neil [00:14:05]:

Do we see lots of different executives names against each of these different accountabilities, or does it all just fall on the fund secretary or the company secretary to handle all the compliance requirements.

Sarah [00:14:15]:

That's a very good question, Neil. And it's different in different shops. The problem is, if you all gang up on three people and tell them they have to be responsible for everything, then the problem you have is this reasonable steps obligation of how on earth can you demonstrate that three people are responsible for everything that's going on in the entire organisation? And not just responsible, but are across it because they're accountable persons that they are accountable for that thing and they know what's going on at enough level, enough. Not. Doesn't have to be nuts and bolts, but enough details to see what's going on. The real question for me, because I'm interested in what happens across the industry as much as in anyone's shop, is who's going to get whacked first?

Neil [00:14:53]:

Have we seen anybody whacked yet?

Sarah [00:14:55]:

No, no, because it's only just started. So the normal way this goes is ASIC goes round to anyone who looks suspiciously like there might be a problem and starts asking for books and records.

Neil [00:15:04]:

Right, Good. Good opportunity to tighten up your act.

Sarah [00:15:07]:

Yes. So it's a very good opportunity to tighten up. I mean, it's only just started, but often when, like when DDO first started, I did hear the words minimum viable compliance bandied around a bit, which was basically, we'll do whatever we have to do to get to day one and then we'll deal with day two after that. With far the day one expectations are very high because it's documentation. You actually have to have all these things documented where some stuff's for DDI you didn't have to do until three months or six months later. So I expect someone will get caught. When I say someone, I mean a firm will get caught up fairly soon. The question is, will it be a big one or a little one? To be honest, if I was a smaller one, I'd be more concerned are.

Neil [00:15:51]:

The penalties here at an individual level? So Sarah is going to go to jail because she failed to execute her accountability properly, or is it the financial services organization that she works for gets fined because it didn't handle the accountability in a proper manner?

Sarah [00:16:07]:

I think it's both. So I think, Neil, really, what is the moral of this story? You and I should high five ourselves for working in our own organisations and not being in a large regulated super fund?

Neil [00:16:19]:

Well, yeah, I carry enough accountability and responsibility, thank you very much.

Sarah [00:16:24]:

Well, speaking of, that's our big idea for this week.

Neil [00:16:27]:

We love talking about big ideas on the show. And you know what's new? What's happening, what are we doing? And I'm actually in a season where I think I'm doing enough, maybe doing a little bit too much. So just for the next couple of weeks at least I'm going to practice finishing what I started, not starting anything new. I've got enough of my plates, in fact, I've got enough plates spinning. All of those plates I've got, but they're spinning and they've got enough on them. So I would like to finish some things off. So we talked recently about my embarkation upon my RG146 superannuation training. I have started, I haven't finished.

Sarah [00:17:01]:

Well done.

Neil [00:17:02]:

But I've done the first couple of hours, learned about all the different types of superannuation fund. I've got some questions, but I'm making some progress, so that's good. I'm not going to start any new trainings and certifications right now up until I finish that one and you know, other things, initiatives like that where we have embarked upon something. I just want to get it finished. I want to finish more things than I start over the next three months. That would be good.

Sarah [00:17:23]:

Oh, that sounds excellent. That does remind me of my favorite all time ever business article, which is the Harvard Business Review article that was published in the 70s and then republished in the 90s called who's Got the Monkey? Which is all about how many things you've got on your plate. And it includes the absolute winning line, which I know probably half the people who listen to this will have heard me say in the past, which is monkeys should be fed or shot. And I just for some reason find that hysterically funny. But the idea is if you've got a whole bunch of half sort of thought out projects and things on your plate, it's really hard to keep on top of them. You actually have to either have projects that you're doing, and in this article I think it says you can do a maximum of six or seven realistically and everything else needs to get put on the later list. If you just have 30 things on your plate, you'll never finish any of them, which is just a horrible feeling.

Neil [00:18:17]:

I think seven's a perfect number. One for each day of the week. Yeah. So how are your plates, your monkeys? Have you got enough monkeys in your circus?

Sarah [00:18:27]:

I am unfortunately spinning a few extra monkeys right at the moment because there's 10 people in our business. One's on holiday leave and the other one, sadly, her father has passed away and so she's taken some time off so, yes, I'm spinning plates like a Mad Woman would be the short version.

Neil [00:18:46]:

Well, I like to. I like to think of these things as seasons. And I give myself some grace to, you know, run with a bit of chaos for a little while and think, okay, the week after next I'm going to come down, I'm going to clear my calendar a little bit, make some space to go back to doing the important stuff, but recognizing that right now there's just a lot of urgent stuff that needs to get done and that's okay. I'm going to prioritize that for the next week or 10 days and then get back to the important stuff and then just cut yourself some slack.

Sarah [00:19:10]:

Yes, I think that's very important. I think way too much of us spent far too much time beating up on ourselves about things, when actually in the end you're just wasting energy beating up on yourself. And you might as well just use that energy to sort it out and figure out how not to do it next time. Or as you say, just go, oh, well, I'm very busy right now and that is how it is and I'll go forwards with it, but that shouldn't stop you from going to the odd event. So my recommendation for this week, we have a PDS Manager roundtable, which is basically a webinar. Coming up on the 20th of August, we have Craig Parrish from Maurice Blackburn, he's the Australian Head of Financial Services. He is going to come and talk to PDS managers and other people who are involved in PDSs about what happens when a PDS is involved in a court case. And we've already got 50 people registered, so I think this is clearly a hot topic and it is that interesting thing, you know, when you put something new out into the world, whether it's a PD's or anything, you sort of feel like you've finished.

Sarah [00:20:11]:

But actually, especially with PDF, that's the start date. The on market date is the start date, not the finish date, finish date for you writing it, but it's the start date for the actual life of the pds. And I met Craig at an insurance conference and he. I was working on an insurance PDS and I said to him, have you ever had a court case that hinged on capitalisation in an insurance pds?

Neil [00:20:34]:

No.

Sarah [00:20:36]:

Yes, he has. I know. Oh my God. I was stunned. Anyway, so then I thought, yes, this was definitely a good topic to come and talk about. Yeah, when good PDS's go bad or. I don't know, we came up with Lots of headlines. They were all very silly.

Neil [00:20:53]:

Okay, good.

Sarah [00:20:54]:

And how about you on events?

Neil [00:20:56]:

Sticking with my earlier point, I've cleared my calendar. There's not too much coming up. I might be going to a Tech in Government conference in a couple of weeks time in Canberra. We'll see how that one goes and then nothing much until we probably kick off the conference season later in the year. I noticed the dates for the IBRC Engage conference have shifted a little, which is great because it clashed with the ASFA conference in the Gold coast this year. That's now moved to the 18th and 19th of November I believe, and it's going to be in Sydney. So anybody involved in member communications, in member engagement, that's going to be a great focused forum for those folks. A week after ASFA and it's going to be in Sydney.

Sarah [00:21:35]:

Yes. When I originally heard it was straight after asfa, I thought, oh, that's no good. I think it will be an excellent conference. I've seen the program coming together, there's lots of really interesting ideas and hopefully by then harking back to the beginning of this conversation, we might even have some legislation about quality of advice review and nudging and a whole pile of other things.

Neil [00:21:56]:

It'd be great to see what we can do in communications around nudging and providing people with little hints and tips about how to improve their financial position. That'd be great.

Sarah [00:22:03]:

Yes, indeed. Yes, amazing.

Neil [00:22:06]:

Sarah, thank you so much. I think that's a wrap.

Sarah [00:22:08]:

I think that is a wrap. On that note, we can all go away and think about giving ourselves hints and tips on doing better things in superannuation.

Neil [00:22:15]:

Thanks so much. Thanks for listening to that super show. We hope today's episode give you something useful to take back to your team.

Sarah [00:22:22]:

If you're thinking we should talk, we'd love to chat. You can book a meeting with either of us via the link in the show notes and don't forget to follow.

Neil [00:22:28]:

The show, share it with a colleague and drop us a line if there's a topic you want us to tackle.

Sarah [00:22:32]:

Catch you next time on that super show.