When Bill Shorten met key industry representatives at a joint Professional Planner/Investment Magazine roundtable, his message for financial planners was clear. Simon Hoyle reports.
Three Government reviews – Henry, Cooper and Ripoll- have formed the perfect storm of regulatory reform, tackling the big issues of tax, superannuation and financial advice, respectively.
The three areas are interdependent: Tax reform will be pointless if it does not encourage saving and investment; superannuation reform will be counterproductive if it undermines the tax system; and both tax and super reform will be ineffective if the financial planning industry remains conflicted and continues to suffer public mistrust.
Boosting superannuation contributions from 9 per cent to 12 per cent is one part of the “confidence puzzle” (as it were) – but so is making it easier for individuals to get money into the system, and to access high-quality financial planning services.“High quality” means not only technically sound, but conflict-free and framed in the client’s best interest.
The Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, says he recognises the role financial planning plays in making super individuals achieve adequate retirement incomes. And he says the Government will not shy away from making the changes it thinks are required.
“We will implement what we say we’re going to do,” Shorten says.
“So there shouldn’t be any uncertainty about that, no reading of the tea leaves. There’ll be plenty of wrinkles in the implementation, and we will count upon people in this room, and again, the broader industry, to help us iron out those wrinkles.”
Fiona Reynolds, chief executive of the Australian Institute of Superannuation Trustees (AIST), says increasing compulsory superannuation contributions from 9 per cent to 12 per cent is “the most important issue, and I’m glad that it’s really high on your agenda”.
Terry McCreddan, chief executive of UniSuper, agrees, but says there needs to be an effort to explain to the broader community why an increase in compulsory super is necessary.
“The Australian population, in general, is reasonably [well informed],” McCreddan says.
“If you put the proposition to them, we should be able to get them to understand it. It’s about the adequacy, that we’re living longer – longevity – so people [understand] that 9 per cent isn’t enough. Twelve per cent probably isn’t quite enough.”
And John Shuttleworth, general manager of platforms, marketing and communication for BT Financial Group, says it has to be made simpler for people to actually get enough money into the system, and to have confidence in the system.
“Because we reduced the contribution caps and we’ve come off the back of a GFC, it’s what we actually do to encourage people to put more in,” Shuttleworth says.
“It’s the ability to look at contribution caps and what we do beyond just the 9 to 12 per cent to really make it attractive because I think the fundamental issue with a lot of the reforms is loss in confidence in the system.”
David Whiteley, executive manager of Industry Superannuation Network, says lowering the contribution caps had “a disproportionate effect on people’s confidence, because I think people don’t necessarily understand the detail of it”.
“We’ve got to remember though, we’re looking at providing incentives for people to contribute to their super, but there is somewhere in the order of between – well, just under three million people that are receiving no tax concessions on the super contributions.
“There would be a lot of lower income earners, people working part-time, of course, whose marginal tax rate is at 15 per cent or lower. So they’re receiving no tax concession on the contribution they’re making to their super.
“I think what happens a lot in our industry is we tend to focus more on those members of the community that can afford to contribute more, and we need to do that – I’m not diminishing that – but we tend to focus less on those for whom compulsory superannuation was first set up. These are the people that need the system so they’ve got something to retire with. It’s not about having, you know, the icing on the cake; it’s about having something to retire with.”
Shorten says he recognises the importance of the adequacy issue, but says there are “three Cs” that the Government must balance: compulsion, concessionality and certainty.
“I think that certainty’s got to be something we do; at some point we have to bed down the debate and say, not, ‘That’s it’ – there’ll always be things which come up; you should never be monolithic – but we’ve got to remove it a bit from the day-to-day political hurly-burly, because I think one of the things which undermines confidence in superannuation, obviously continued poor performance, definitely, but I also think that [with] inconsistent tax treatment, people just get annoyed,” he says.
“So when we talk about adequacy, I think those three Cs underpin the debate about adequacy too.”
Shorten says another issue that must be addressed is how to get people engaged with superannuation and with their own superannuation funds.
“I know as a former Australian Workers’ Union rep, I couldn’t interest my younger workers or members in super; but somewhere in their early 40s, when we’re talking about pay claims and super came in, they switched on,” he says.
“I’m sure Andrea [Slattery] knows from the sort of demographic profile of people who’ve set up self-managed super funds, some of the trend I’m describing would exist, people engage more.”
Slattery, chief executive of the Self-Managed Superannuation Fund Professionals’ Association of Australia (SPAA), says that among self-managed fund members “we have, effectively, 100 per cent engagement”.
Mark Rantall, chief executive of the Financial Planning Association of Australia, says an important piece in the engagement puzzle is to make high-quality financial advice more readily available.
“I think part of that is the importance of obtaining financial advice from a whole variety of sources: superannuation funds and call centres and banks; but also from financial planners,” Rantall says.
Richard Klipin, chief executive of the Association of Financial Advisers (AFA), says one reason more people don’t seek advice is a lack of confidence in the industry’s services. He says the industry knows that what it offers is valuable, but that message doesn’t necessarily reach the wider audience.
“What we’ve got in the mix at the moment obviously, with the superannuation conversation and the FoFA conversation, is kind of this moribund conversation because it’s kind of so [mired] in the technicality of it, and…we talk to ourselves a lot about our own stuff – and it’s just noise; in ‘Consumerland’, it’s not about their world,” Klipin says.
“You know, that’s five years of, I reckon, lost opportunity where people are kind of turned off because we, as an industry, are not talking to them about their issues; we’re talking to ourselves about our issues.”
Steve Helmich, director of financial planning, advice and services for AMP Financial Services, says the financial planning industry has “a great opportunity” arising from the current industry reviews.
“We see the opportunity from the many reviews that are coming on to try and lift public confidence in broad financial planning and financial advice,” he says.
“[There’s] a great opportunity coming from the banning of commissions and the increased transparency, getting confidence into the sector, getting people to understand more about the role financial planners play, because I think there’s been too much focus on investment performance, and issues like that.
“I don’t know a financial planner who can control the market or tell you what the markets are doing day-to-day, but it’s more around the actual advice and planning and strategy and discipline that planners bring.”
Marianne Perkovic, general manager of distribution at Colonial First State, says the job that institutions have done to improve systems and cut costs should not be overlooked in the debate about how to improve consumer confidence. Perkovic says the debate about platforms and the issue of volume rebates shouldn’t be allowed to compromise the benefits to consumers.
“Over the years, when I ran an advice business and negotiated the payments, it actually did reduce the cost of advice to clients, and I think that’s what’s forgotten,” she says.
