Can it really be that after all these years, the days of paying sales commissions for superannuation product advice are numbered?
And if they are, does it really mean, as recently claimed by the Investment and Financial Services Association (IFSA), the loss of thousands of jobs in the financial planning industry?
The recent announcement by the Minister for Superannuation and Corporate Law, Senator Nick Sherry, of a “landmark” examination of the structure, operation and efficiency of the superannuation industry has come amid speculation that the Government is considering putting an end to commission selling of at least the compulsory Superannuation Guarantee (SG) component of superannuation savings.
A communiquÃƒÂ© of major industry voices, which was attached to the Senator’s press release, included a reference to transitional arrangements for changes, and certainly seems to indicate an industry-wide view that substantial change is both needed and likely.
At the time of writing, I do not have the terms of reference for the inquiry, but I suspect they will cover a very wide range of issues and problems. It is, after all, not surprising that such a critical area of public policy and investment capital formation should generate a great many areas for potential reform – particularly when it is remembered that the superannuation system is not the product of a grand design based on a single public policy objective.
Rather, it is a complex mish-mash of numerous pieces of legislation accumulated over many years and resulting in a universal retirement income regime superimposed upon a voluntary savings regime that’s driven by tax incentives, commission-based selling and individual corporate human resources (HR) policies.
If the media speculation is correct and a ban on commissions ultimately occurs, but only in relation to the SG component, I suspect the market will adapt in a number of ways to undermine the intended outcome.
For example, commissions relating to voluntary contributions and non-super savings might double, so that the basic advice model is preserved.
Equally, people might be encouraged away from super to other investments paying significant commissions, such as speculative property developments. On the other hand, a more comprehensive ban on commission-based selling and an unequivocal legal requirement for licensed planners/ advisers and accountants to act only in the best interests of their clients would produce a more fundamental reform of the advisory industry.
This is very unlikely to cause any significant job losses. Rather, it will bring about a dichotomy such that licensed advisers become true fee-for-service professionals, charging the appropriate hourly rate, while many others will revert to an overt sales role on behalf of product providers.
There will also be a need for superannuation funds themselves to provide a much greater level of advice, ranging from mass advice, through simple individual advice, to sophisticated plans based on fee for service.