Member best interest – who and what
Trustees of super funds are required to make decisions in the member’s best interest (MBI). So, who is the member and what is their best interest?
I have worked with a number of trustee boards and the discussion often comes around to the issue of MBI. Different trustees have their own views and these views can be classified into three broad categories.
1) Existing member best interests in the fund.
I think this is the definition that is instinctively used by most trustees. In effect, decisions need to be made to maximise the benefits to the existing members in the fund. Benefits can include services as well as financial benefits. Even with this intuitively simple approach to MBI there can still be differences in opinion around intergenerational equity and other cross subsidy type issues.
2) Existing member best interests in the world.
This definition looks ambitious but some trustees do think of MBI in these terms. In effect, trustees justify their investment decisions both from the perspective of the member’s interests in the superannuation fund, but also the world that the member will retire into. I have heard many statements by trustees and promoters of very large funds that claim that the trustees, through their investment decisions, can have an impact on the world. Trustees do walk a fine line in how they make investment decisions. If the trustees apply an ideological perspective to their decision making it implies the members agree with it. It could be argued that trustees should not be promoting a view of the world that some of the fund’s members could reasonably disagree with. I would argue in particular, that trustees of a fund with a MySuper option need to be particularly careful in imposing their values or the values of their sponsoring organisations on their MySuper members.
3) Current and future members
Some would argue that the trustees have a responsibility to members who have not yet joined, or even been born. At law, directors of companies do have a responsibility to shareholders as an entity, in effect current and future shareholders. Is it reasonable to conclude therefore that the trustee may have a responsibility to the fund as an entity and hence future members? I think this idea is a stretch but it is easy to see how some trustees may think this.
I think that it is a useful for the trustees to document exactly what they mean by member’s best interest. Having a documented clear definition of MBI will help trustees to justify their decisions to members and the regulator. Adopting a definition of MBI that includes a view of a better world requires trustees taking on an ideological position and a set of values that may be open to criticism.
By the way, I don’t think that avoiding the ‘better world’ arguments means that trustees shouldn’t invest responsibly. Many funds and investment managers are signatories to the United Nations Principles of Responsible Investments (UNPRI). There has been research that indicates that a company’s Environmental, Social and Governance (ESG)practices do impact their total returns so it seems that can justify ESG investment strategies based on performance alone.
There are other instances where the trustees may, for example, use their proxy votes to influence companies to behave correctly. Trustees need to think about their investment decisions being interpreted as extending beyond the realm of the investment performance for the member vs. making a better world for the member. It would seem reasonable to think about ESG issues if it is genuinely believed that ESG factors will affect the long-term investment performance. It is another matter to think of taking a position on what a better world would be and then imposing this on the members. A topic for further discussion!!
