Super funds suddenly "risky business"

Conflict of interest looms as major issue

Australia's superannuation funds are not immune to the conflict of interest and corporate governance questions being asked around the business world.

"The business climate has changed, and what was a sensible arrangement yesterday has become a major risk exposure today," says Christopher Butler, Managing Director, The Heron Partnership. "Employers and trustees need to take immediate steps to validate their risk profile," he urged.

He said most funds would need to take a fresh look at what is good corporate governance in superannuation. Mr Butler said this was best described in terms of the interests of members and the concept of "separation of powers" in evaluating and managing members' superannuation.

He urged funds to review the processes and procedures against memberâ??s expectations, for example, around member investment choice, where significant risk exposure occurs.

Mr Butler proposed a three-stage risk evaluation for superannuation funds:

• Identify the pressure points caused by a concentration of delegations to individual service providers
• Risk assessment, including a concentration of potential conflicts of interest
• Mitigation of risk, through appropriate action and application of strong governance principles

Mr Butler predicted that Australia is facing a looming conflict of interest problem in superannuation, caused when a superannuation fund hands over its advisory services, administration and asset management to the one consulting firm.

The Heron Partnership is an independent consultancy to Australiaâ??s superannuation industry. It was launched in July 2002 and challenges existing consultancy practices through providing an alternative of independent advice, low fees and greater accountability for implementation and outcomes. The Heron Partnership is based in Melbourne.