POWERED BY MOMENTUM MEDIA
Fiduciary duty forgotten in related party insurance arrangements
Super fund members in retail funds with binding insurance nominations are getting a raw deal, an Australian Prudential Regulation Authority working paper has suggested.
Authors Kevin Liu and Bruce R Arnold said members of 'bound' funds, where the trustee was required to use a related insurance company by way of the trust deed, paid more for insurance and purchased higher levels of insurance.
Liu and Arnold looked at 52 retail sector funds and found that in 20 cases, the trustee was related to an insurance company, and in all but one of those cases, they were 'bound' to source member's insurance through that provider.
It said members of bound funds paid average annual premiums of $252, or twice the cost of all other fund types, while receiving only 20 per cent more benefit.
Trustees may be breaking their fiduciary duty, the paper said, by allowing "the insurer to earn a super-profit to the detriment of members".
"The very existence of bound funds suggests that offering both superannuation and insurance is part of a single business model," they said.
The paper also said that in proportionally more of the related-party arrangements, members were not given a group life option.
Liu and Arnold said the cost differences could be due to self-selection, in the case of a superannuation account being opened solely for the purpose of insurance, or product features which could over time deliver a comparable level of benefit.
However, they did not think so, as the data was analysed over a six-year period.
The authors suggested trustees assess their fiduciary duty in regard to sourcing the best insurance arrangements for members.
They said if trustees were bound by the trust deed, life insurers should be discouraged from price-fixing, due to their duties under the Life Insurance Act 1995.
AUTHOR
Staff Writer
Money Management staff writers are writers who contribute to the website from time to time. If you would like to discuss the content contained within this article please contact us.
Recommended for you
The insurance company has joined this year’s awards as a principal partner.
The $135 billion fund has transitioned away from TAL Life Insurance following an “extensive tender process”.
The $80 billion fund is facing legal action over allegedly signing up new members to income protection insurance by default without active member consent.
In a Senate submission, the Financial Services Council has once again called for further clarification that the government will assess the consumer outcomes of group insurance against the enshrined objective of superannuation.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
Spire Oaktree Opportunities XI Second Close
61.07 3 y p.a(%)
2
Spire Oaktree Opportunities XI First Close USD
59.21 3 y p.a(%)
3
DomaCom Lot 21 Chellaston Road Munno Para West SA 5115 Australia
31.56 3 y p.a(%)
4
Fidante Credit Suisse Global Private Equity
31.06 3 y p.a(%)
5
DomaCom 4/27 Crombie Avenue Bundall QLD 4217 Australia
26.81 3 y p.a(%)
