This edition of our ‘FSR GPS’ (Guidelines, Principles and Strategies) series provides some insights and practical guidance on the new ‘best financial interests duty’ that applies to superannuation trustees.

This duty has been inserted into section 52(2)(c) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act), amending the previous best interests duty.

Is the best financial interests duty a departure from the previous best interests duty?

As our readers will be aware, the new duty – which adds the word “financial” to the previous best interests formulation – represents a further step in the cumulative evolution of the original duty.

It is noteworthy that the concept of promoting the ‘financial interests’ of fund members was already in the SIS Act prior to the introduction of the best financial interests duty; specifically in section 52(12) which imposes an obligation on the trustee to promote the financial interests of members, particularly in respect of returns.

The seminal question is whether the duty is ‘outcomes driven’ or is still mostly about process, as is the case with the previous best interests duty (as we know, the historical test was seen as process driven, not measured by outcomes and viewed as an amalgam of a duty of care and of loyalty). This distinction is an important one if the new duty is outcomes-focussed – past regulatory experience has shown that the test can be interpreted through the lens of whether the members are better off as a result of the trustee action or decision. It is submitted that even if the test is outcomes-focussed, using the question of whether members would be better off as a pass or fail criterion would not be the right approach.

Importantly, the court has now confirmed that the best interests test is an objective one (Kelaher[1]), so evidence of a belief on the part of a trustee that it is acting in the best interests of members may be less conclusive than is widely believed. This distinction between a subjective test and an objective test was raised number of years ago by Lehane J (commenting extra-judicially) where he explained his view that the duty is not “an obligation to act in a way which the trustee honestly considers to be in their interests (and is not demonstrably not in their interests)” but “a positive obligation to act in what are, objectively, their interests…”.[2]

Certainly, the reversal of the burden of proof could change judicial attitude and render a court more likely to view the duty as outcomes-focused; in particular the concept propagated in the Explanatory Memorandum could fuel an outcomes-based interpretation that the determinative consideration of the trustee must be whether any action of the trustee will yield financial benefits to the beneficiaries (at paragraph 3.31).[3]

Arguably then, the trustee is required to form a view on expected outputs of a particular decision in terms of how any action will ‘yield financial benefits’. There could be some difficulty where the outcome of a decision may not be able to be ascertained instantly and where assumptions must be drawn for the trustee to form its view on the expected outcome, for example, the anticipated usage of a new application or the anticipated uplift in performance from a change in investment strategy.

The changes do not, in our view, change the essential difference between a trustee power (e.g. a fiduciary or equitable obligation to beneficiaries) and a trustee right (e.g. a right to remuneration or indemnification). As a result, a decision to change fees charged within the limits of the trust instrument would not be something which attaches to the best financial interests duty, given it is a trustee right.

Notwithstanding the possibility that a court may be more inclined to view the duty as outcome-focused, in our opinion there must still be a strong element of what we would call ‘counter-hindsight’. By this we mean that provided the trustee has given genuine and reasonable consideration to the likely outcomes of its decision, it would not be liable for outcomes which deviate from the ones expected, except in limited circumstances. This is also subject to the trustee being able to successfully navigate the reverse onus of proof.

Does the new duty apply to every action or decision of the trustee?

The new duty applies to exercises of powers and discretions. While the term ‘power’ has always had some legal ambiguity (i.e. does it apply to any action taken by a trustee?), it seems that the duty will apply to any decisions and consequential actions by a trustee except matters that are in the nature of administrative process (which the law describes as ‘ministerial’).

An example of a process matter might be sending out annual reports to which there seems little connection to the potential changing of rights or other impact on a member. Certainly, materiality alone is not a criterion that can be used to filter out certain trustee actions from the purview of the duty. In fact, the Explanatory Memorandum says that there is no materiality threshold. Potentially, the amended covenant therefore applies to every action or decision of the trustee, made by the trustee board or by any committee. We address below whether the duty applies to any person with delegated decision making power by the trustee.

The issue of materiality is a fraught one. Minor decisions are seldom litigated under the general law because the parties have little incentive to seek a commensurately small remedy. It is different in a regulatory regime, such as the superannuation system, where a pattern of small, individually immaterial transgressions might be used by a regulatory agency as evidence of a systematic failure by the regulated entity. The starting point is that there is no reference to materiality in the SIS Act in respect of the section 52 covenants. It is consequently difficult to suggest a level at which the duties might not apply, as any level would be arbitrary and hence impossible to defend.

This presents an obvious practical challenge. How can a trustee practically navigate and manage this new duty? As indicated below, one practical solution is to emphasise the importance of the trustee formulating, implementing and monitoring policies and processes designed to promote conformity with the SIS Act covenants as a way to focus the best financial interests analysis at the strategic (policy) level rather than at an individual expenditure level. However, exceptional or perhaps large payments should be separately tested against the best financial interests duty and evidence of financial benefit collected and kept.

This approach is entirely consistent with guidance provided in the Explanatory Memorandum, viz:

“Provided any expenditure is essential to the prudent operation of a superannuation entity and reporting and monitoring frameworks for such expenditure are put in place by trustees to ensure that the expenditure is necessary and provided on competitive terms (and any ongoing expenditure continues to achieve its intended outcomes), then the expenditure decision would likely be regarded to be in the best financial interests of the beneficiaries.”(at paragraph 3.33)

Of course, the Explanatory Memorandum also notes that:

“Whether the expenditure ultimately is or is not in the best financial interests of beneficiaries will of course depend on all the circumstances of the relevant case.” (at paragraph 3.33)

Strategic decisions, and those with a broad or material impact for the fund, would on this basis be made by the board. Less material decisions will be guided by procedures and policies determined by the board, and conformity with those procedures and policies will need to be monitored carefully by the board. Less documentation will be required in respect of expenditure that falls within the policies, and more will be required for decisions that are exceptional (and hence outside the policies) or large in scope or quantum[4]. The lower documentation requirement for smaller, within-policy expenditure decisions can be justified in terms of a cost-benefit assessment, a calibration made more robust by the presence of the carefully formulated policies and procedures by which such expenditure is governed. In our view, this limits the extent to which a board can be held liable for decisions taken outside the board and also narrows the grounds on which the trustee itself can be held liable by a regulator for non-compliance.

One initiative that we have seen discussed in the industry is the idea of a documented ‘Best Financial Interests Policy’. With respect, we are not advocates of separately identifying the best financial interests duty in this way. The requirement to exercise all powers and perform all duties in the best financial interests of members is just one of the covenants in section 52 of the SIS Act. All the qualities of conduct described in those covenants are important in the sense that they are enforceable by APRA and by members. Rather, as noted above, we recommend that the requirements of the covenant be built seamlessly into the existing policies and processes of the trustee.

Can you provide some examples of applying the duty at a macro level?

A decision to offer member investment choice, or insurance options of a particular type, or member reporting facilities through a particular medium (for instance) will be motivated by consideration of the interests of members as a whole. Some may benefit more than others, so long as members within a class are treated fairly and the classes are treated fairly.

The choices a member makes in respect of investment options or insurance, in contrast, do not involve the trustee exercising a full discretion. Subject to the terms of the trust, the trustee will typically be required to comply with any valid instructions received from eligible members. The trustee will owe a duty to exercise care in complying with those instructions (e.g. following them accurately and in a timely manner), but there will be no overarching requirement to consider the best financial interests of the member at that time. The same, we submit, would apply to the nomination of a beneficiary by an eligible member. So long as the terms of the trust are drafted to deprive the trustee of any discretion about how to deal with a valid instruction, no question of enquiring into the best interests of the member will arise, at the level of usage by the member of the facility.

Looking more closely at the example mentioned of accepting a binding (non-lapsing) death benefit nomination, we assume the relevant exercise of trustee power would have been the decision to amend the trust deed to give members a right to make such nominations and the proffering of such a facility to members in the product disclosure statement. One would expect the trust deed provisions to require acceptance of such nominations (rather than granting the trustee a discretion to do so). In this way, the covenant would operate alongside and within the framework established by the trust deed and in our view, assessment of the duty could, as mentioned, be made at the level of conferring the facility on members at inception of the facility.

In other aspects and applications, the trustee can formulate an expenditure policy or policies such that in effect, at least in the first instance, the duty is considered at a macro level in the sense of applying the duty to encompassing holistic areas and arrangements (e.g. third party payments, investment, insurance etc).

How do the new rules relate to payments made to third parties “by, or on behalf of the entity” in the context of related party arrangements? E.g. an administrator engaging a service provider to perform the services required under the administration contract? Is this an engagement “on behalf of” the entity (i.e. the superannuation trustee)?

If the new rules apply only to the trustee narrowly identified, then section 52(3A) of the SIS Act will not apply to its delegates or any party engaged contractually as service providers by a delegate. If on the other hand, the new rules do apply to those exercising discretionary powers as delegates, then payments by those delegates to such service providers on behalf of the entity may be caught by section 52(3A). We say “may” because it will depend on the structure of the arrangements and the nature of the services provided by the delegate.

A broad interpretative ambit is likely to be taken in this context such that appointments of, and payments to, related parties will be seen as captured on the basis of being made on behalf of the entity.

The answer to this question to a large extent also hinges on the type of payment being made and an analysis of the relationship to the trustee.

To illustrate the point:

  • in some circumstances, an administrator makes a payment on behalf of and as agent for the trustee. Examples of this kind of payment include benefit payments and payments of expenses from the fund bank account pursuant to authority conferred on the administrator by the trustee. In our view, this type of payment would be caught by the provision on the basis that it is made on behalf of the fund; whereas
  • other payments may be made by the service provider not as agent of the trustee but as an aspect of operating its own business. As an example, if the administrator is engaged to provide a service such as mailing statements to members or the provision of a call centre and the contract authorises the service provider to choose whether to perform these services itself or to delegate to a third party, then any decision by the administrator to outsource (and pay the outsourced provider) is a decision of the administrator in its own capacity, not as agent of the trustee and as such, the payments to the outsourced provider appointed by the administrator would not be caught.

Does the new duty apply to an administrator exercising delegated powers?

There is an argument that the reference to trustee here extends to parties to whom the trustee has delegated a discretion in respect of trust assets. An administrator exercising discretionary powers on behalf of the trustee (see further below) might then be subject to the section 52 covenants, including the new rules. That interpretation is consistent with a policy objective to ensure that there is always someone with accountability in respect of any key decisions related to a regulated superannuation fund. On the other hand, the definition in section 10 of the SIS Act seems to limit the definition of trustee in circumstances where there is a trustee to actual trustee.

Another complicating factor is that typically an administration contract will require the counterparty to undertake a variety of tasks. Only a small minority of these will require the administrator to exercise powers or discretions (and hence are caught by the new rules) as opposed to determining ministerial matters (i.e. process matters). Any powers or discretions in any event require the consent of the trustee (with a few exceptions such as binding death benefit nominations).

It is commonplace in the industry for trustees to consent in advance to the administrator exercising discretion in respect of those decisions that do require trustee consent. A question therefore arises whether the consent provided by trustees in respect of decisions of the administrator that are discretionary constitutes a discrete act of the trustee at the time of the decision of the administrator, or dates back to the time when the consent in advance was provided. We are not aware of any judicial consideration of this matter but believe a court is more likely to find that the consent dates to the earlier rather than the later date. If that approach is ultimately taken by a court, and the administrator is subject to the new rules (including the transitional provisions), then the trustee’s covenant will not come under the new rules until the contract of administration is renewed, varied or terminated.

How do the transitional rules work?

Item 21 of Schedule 3 of the Treasury Laws Amendment (Your Future, Your Super) Act 2021 provides that the new rules only apply in relation to the performance of duties or the exercise of powers by a trustee on or after the commencement date of 1 July 2021, and:

  • do not apply to the performance of duties, or the exercise of powers, under contracts entered into before the commencement date, but
  • do apply to decisions made on or after the commencement date to renew or vary the contract; and
  • do apply to the performance of duties or the exercise of powers, on and from the date of any renewal or variation made on or after the commencement date.

Is the trustee strictly liable if an action does not turn out to be in the best financial interests of members?

As we have canvassed earlier, there will still be an important element of trustee protection (which we referred to as the ‘counter-hindsight principle’) which operates to protect the trustee. Provided the trustee has given genuine and reasonable consideration to the likely outcomes of its decision, it would not be liable for outcomes which deviate from the ones expected, except in limited circumstances.

These are primarily where the trustee has not acted in good faith or honestly, acted for an improper purpose, breaches its duty of care or the decision of the trustee is one that no reasonable trustee could have formulated (in accordance with the Breckler principle). This is subject to the trustee being able to successfully navigate the reverse onus of proof, that is being able to show evidence of the expected financial benefit in circumstances where it gave genuine and reasonable consideration to the decision (this evidence could still be adduced at the macro level as discussed earlier).

Where does this leave us?

Our conclusion is that it is possible that a court may at some point in the future decide that the delegate is impressed with the obligations of its principal (the trustee) under the SIS Act covenants, but this ought not to distract from the pressing need for trustees to ensure that their contractual arrangements with service providers expressly address the need for those service providers to operate in a way that enables the trustee to meet its statutory and general law obligations.

In our view, the trustee should ensure (by contract) that its delegates facilitate compliance with the new rules. This position is consistent with the Explanatory Memorandum:

“The use of an interposed corporate entity that a superannuation fund owns equity in, to acquire services on behalf of the superannuation fund, will not insulate the trustee from ensuring that the services that are ultimately provided to the fund are in the best financial interests of the beneficiaries.” (at paragraph 3.55)

The imposition of such obligations on the delegate would be consistent with the trustee’s covenant obligations as added to the content of the governing rules ‘not to enter into any contract, or do anything that would prevent the trustee from, or hinder the trustee in, properly performing or executing the trustee’s functions and powers’ (section 52(2)(h) of the SIS Act).

This last element is consistent with the trustee not being prevented from “engaging or authorising persons to do acts or things on behalf of the trustee” (section 52(5) of the SIS Act) and is consistent with the extra-judicial observations of Lehane J:

“Thus, particular statute apart, if a trust instrument may divide functions, there seems to be no good reason why a deed should not empower a trustee (vested initially with all the relevant functions) to delegate some (perhaps any) of them, although that is likely to involve delegating discretions. But, consistently with the principles already discussed, such a delegation could not be a means of enabling powers to be exercised otherwise than in accordance with fiduciary standards”.[5]

This is different to postulating that the delegate owes fiduciary or statutory duties to the beneficiaries (unless arguably so provided by the delegation).

The other crucial point is that the new rules do not displace the existing requirements on the trustee to negotiate and then supervise very carefully all delegations. Deficiencies in those processes (for instance, by granting overly wide exoneration clauses in the contract or by inadequate monitoring) could be seen by a court as an attempt by the trustee to evade by delegation its statutory duties, resulting in a breach (depending on the circumstances) of one or more of the other SIS Act covenants in section 52 (subsections (b), (d) or (h), in addition to (c)).

The distinction between delegate and agent can be maintained in this context, with an agency role likely to involve ministerial matters which are administrative in function and do not invoke the application of the duty.

Normal principles of liability for agents acting within the scope of authority would apply.  Liability for the proper appointment of, and monitoring of, performance of the service provider would apply.


We think a powerful form of protection for the trustee will be to ensure all of the policies reference best financial interests and have evidence of it and that decisions under the policy can anchor to all decisions of trustee committees.

The trustee can thereby enshrine the best financial interests test at a macro policy level so that decisions can be made at a more micro level where that decision falls within the rubric of the macro policy, subject to exceptions such as matters of high expenditure or matters which are, by their nature, difficult to assess at a macro level. An exceptional matter could be marketing exercises as this is a difficult area to calibrate the member outcomes versus the expenditure.

This does not provide a universal solution and does not mean that a trustee can operate on autopilot, but should considerably streamline the process.

If you have any questions or would like to receive a workshop on this topic, please get in touch with one of our experts below.


[1] Australian Prudential Regulation Authority v Kelaher [2019] FCA 1521.

[2] Lehane, J R F (1995) “Delegation of Trustees’ Powers and Current Developments in Investment Funds Management,” Bond Law Review: Vol. 7: Iss. 1, Article 4, at page 2.

[3] Explanatory Memorandum, Treasury Laws Amendment (Your Future, Your Super) Bill 2021.

[4] In some circumstances, that documentation might only be the reference back to the overarching policy and the evidence that has been collated to justify that policy.

[5] Lehane, at page 12.


Michael Vrisakis
Michael Vrisakis
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Ruth Stringer
Ruth Stringer
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Scott Donald
Scott Donald
External Consultant
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Tamanna Islam
Tamanna Islam
Senior Associate
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Hartley Spring
Hartley Spring
Senior Associate
+61 2 9322 4656
Shan-Verne Liew
Shan-Verne Liew
+61 2 9225 5210