Thoughts on The Fraser Governance Review

Following on from a blog I published a while back on Public Policy in Superannuation, where I suggested the debate around independence of trustees will play out in 2017. I thought I’d provide an update given events are off and running.

Bernie Fraser has finally published his long awaited review of board governance of Not for Profit Super funds (NFPs), entitled The Fraser Governance Review. It’s important to remember that this report was commissioned in December 2015 by Industry Super Australia (ISA) and the Australian Institute of Superannuation Trustees (AIST) and is seen by some as a means of swaying enough senators to vote down the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 to require all trustees to have one-third independent directors.

The report is simply written and easy to understand, but it’s not a particularly strong document

The report is simply written and easy to understand, but it’s not a particularly strong document. It falls short in laying out reasons why the Superannuation Legislation Amendment (Trustee Governance) Bill 2015 shouldn’t apply to NFP trustees. Sadly, given the extended gestation, Mr Fraser fails to present any alternatives.

Predictably, he argues that NFPs are not the same as the rest of the market, and that there is no case to require them to adopt the same minimum governance standards as retail funds.

Instead it draws on the well-practiced arguments that retail funds have less incentive to reduce costs than NFPs, that Australian practice should not be influenced by overseas practice, and that the clear long term outperformance of NFPs in investment returns is a direct result of their equal representation model. I’d hoped for something more, or at the very least something new.

It praises APRA, I think rightly too, for it’s success in regulating an industry that has grown at an alarming rate for years, but expresses concern that APRA should be given the power to determine a person’s independence should the bill eventually pass.

In mounting a concluding argument Mr Fraser essentially says; “Given enough time NFP boards will drift towards the structure desired by government naturally, so no compulsion should be adopted in law”.

It praises APRA, I think rightly too, for it’s success in regulating an industry that has grown at an alarming rate for years

At this point it becomes hard to see the document as an independent report, a point made by the Financial Services Council over recent months, which has questioned Mr Fraser’s independence, given he has been a member of the both the AustralianSuper and CBUS boards in the past, and given that he has once was an official spokesman for IFA.

The government, also rather predictably, is having none of it. Minister O’Dwyer responded by charactering the report thus: “its key recommendation is that the status quo must be protected at any cost”, in so doing she has stated it is nothing more than a “delaying tactic to kill off reforms that have been in the pipeline since 2010”.

Given the potential within the industry and the need to build trust with superannuants no matter their choice of provider I’d hoped that we might have seen progress from the factional days of the past. Sadly, it seems I had hoped for too much.