Understanding the Agency Problem: What Australian Investors Need to Know in 2025

The agency problem is one of those financial concepts that quietly shapes the way money moves—and sometimes leaks—across the Australian economy. While it might sound academic, its effects touch everyday investors, super funds, and even the stability of major companies. With new regulatory reforms in 2025, understanding the agency problem has never been more crucial for Australians looking to protect and grow their wealth.

What Exactly Is the Agency Problem?

At its core, the agency problem arises when there’s a disconnect between the interests of those who own something (principals, like shareholders) and those who manage it (agents, such as CEOs or fund managers). In Australia, this classic conflict pops up in listed companies, managed investment schemes, and even your superannuation fund. Agents are supposed to act in the best interests of principals—but sometimes, their own incentives get in the way.

• Shareholders vs. Management: A CEO might chase risky growth to boost their short-term bonus, even if it jeopardises long-term shareholder value.

• Super Funds: Fund managers may choose investments that pad performance fees, rather than maximise member returns.

• Financial Advisors: Advisors may recommend products with higher commissions, not necessarily what’s best for the client.

The result? Higher costs, lost value, and sometimes, outright scandals.

Real-World Examples: When Agency Problems Hit Home

The agency problem isn’t just a theoretical risk. In recent years, Australians have seen how unchecked conflicts of interest can lead to headlines—and investor losses.

• AMP Scandal (2018-2023): Management was found to be charging customers for financial advice they never received, a direct breach of trust that cost shareholders billions in market value.

• Superannuation Underperformance: Some default MySuper products lagged the market for years, partly because fund managers were incentivised to take low-risk (but low-return) approaches, while still collecting management fees.

• 2025 Financial Services Royal Commission Reforms: After years of public pressure, new laws coming into effect this year require clearer disclosure of conflicts and tighter alignment of executive pay with long-term performance.

2025 Policy Updates: How Regulation Is Tackling the Agency Problem

This year, the Australian government has rolled out significant reforms designed to put a leash on agency conflicts, especially in the financial services and listed company sectors. Here’s what’s changing in 2025:

• Mandatory Clawbacks: Listed companies must now include clawback clauses in executive pay contracts, allowing boards to reclaim bonuses if future performance falters or misconduct is revealed.

• Super Fund Transparency: Superannuation funds are required to publish detailed breakdowns of management fees, performance benchmarks, and related-party transactions, giving members a clearer view of where their money is going.

• Advisor Independence Standards: Financial advisors who claim to be ‘independent’ must prove they receive less than 10% of income from commissions or volume-based payments, making it easier for consumers to trust recommendations.

• Shareholder Empowerment: New rules strengthen the ability of shareholders to vote on executive remuneration and related-party deals, giving investors a greater say in how companies are run.

These policy shifts signal a clear trend: the government is closing loopholes that allowed agents to put their interests first. For investors, it means less guesswork and more accountability—but vigilance is still required.

What Can Australian Investors Do?

Even with stronger regulation, it’s smart to stay proactive. Here’s how everyday Australians can guard against the agency problem:

• Read the Fine Print: Don’t just skim your super fund’s annual statement. Look for fee disclosures, investment performance, and any related-party deals.

• Vote at AGMs: Use your shareholder rights to push for better governance and fairer pay structures.

• Ask Questions: Whether it’s your advisor or your fund manager, challenge them to explain their incentives and how they manage conflicts of interest.

• Monitor Policy Changes: Stay informed on new regulations—2025 is a watershed year, but enforcement and best practices will keep evolving.

By staying alert and engaged, investors can help minimise the agency problem’s impact on their own portfolios—and push for a fairer financial system for everyone.