“The big players – like BT, Colonial, AMP – we’ve got the systems that show that transparency, and ultimately reduce the cost of advice to clients. So I just want to make sure that that’s highlighted.
“[More broadly], as an industry, I think we’ve got to show a bit more unified position together, so it’s not retail up against industry. It’s one industry, and it’s superannuation, and we are many parts and we service different clients, and I think, instead of attacking each other and criticising different value propositions that we bring, ultimately that will help confidence be restored back to the consumer.”
Even so,“what is very clear is we haven’t done ourselves any favours as an industry developing a phenomenally complex system”, says John Brogden, chief executive of the Financial Services Council (FSC).
“To that end, what we realise – and I say this with the utmost respect – is when your predecessor made the FoFA response, the Ripoll response, on 26 April, what we discovered very soon thereafter, particularly with platforms, was that there was very low level of understanding in Treasury,” Brogden says.
“And that’s only because they’ve really never had to deal with this before in any complex detail. It’s really been regulated and dealt with by ASIC.
“So we’ve been very pleased because Treasury’s been happy to go down this process and understand this in detail, but it is fair to say this…remains a very complex issue and one that, at the very least, runs the risk of eliminating benefits to consumers of being part of the discount.
“I mean, if you’re a consumer purchasing a product which goes through a platform and up to an investment product, say at Aberdeen, and Aberdeen pays a discount coming back down, and if you knock out all rebates, you knock out the benefit the consumer gets in that, you know?
“In other words, you buy 100 Commodores, you get a better deal than buying one Commodore. We can’t risk consumers losing out in that track.”
However, the financial planning industry needs to do a better job of proving it has the best interests of clients at heart.
Gerard Noonan, chair of MediaSuper – whose members include journalists and actors – says his fund’s 125,000-strong membership owes nothing to financial planners.
“Actors think that a platform is a thing that they actually act on,” Noonan says.
“The issue about platforms is a complex one.
“But I do know, in the area of financial advice, we have leakage at the top of our membership, usually with the high-net-worth people, right? They’re at the top, and I know that none of those 125,000 members have got there because a financial adviser has said, ‘You should be in MediaSuper because it’s a really good fund, because it makes X per cent per year, and it’s really cheap’. Not one of them has. From the point of view of – me, as a trustee, a chair and a trustee of that fund, that’s a really big issue to me.
“Part of the solution would be…that financial advice has got to be in the interest of individual people; that would be a starting point, and I know that’s where the Minister’s headed.”
Shorten says he does not buy into the view that financial planners do not have clients’ best interests at heart, and says the debate over the value of planning services could, if unchecked, affect the public’s confidence. He says the Government recognises the potential consequences for the industry of some of the changes being considered.
“For the zealots who think that all financial planners are evil money-sucking leeches, I don’t agree with that – you know, that is some of the debate,” he says.
“The ‘Financial Planner Wars’ have been a bit disproportionate in the rhetoric. But by the same token, for those who think that volume rebates are an unmitigated good – well, whilst it’s a complicated structure, there’s some arrangements that seem to sort of pass the smell test, and there’s others which I think are opportunistic.
“So there will have to be a meeting of minds in the middle; and people in this room will be part of doing that.
“I take a consumer view on it. People can get better returns if they invest in riskier products. People can get better returns if they can find a sweet spot of tax minimisa- tion. There’s a whole lot of reasons why people have high performance – you know, better or worse accounts. But I also see the aftermath of poor advice or indeed, not poor advice, even, but malfeasance – that’s where people lose their money.
“I get that if we’re going to change something, it has economic consequences for people.
“So I should say, on a positive note, to those who might be negatively affected by change, you know, I’m open for discussion on transition. I get [that] contracts have been entered into; I get that people have made arrangements; so let’s be pragmatic about, not that we’re going to change, but trying to do the change in a way which tries not to see too many losers in the short term.”
The managing director of Aberdeen, Brett Jollie, says a missing ingredient is the confidence that consumers have in the services provided by financial planners.
“I think there is a lack of confidence in the industry, at the moment, a lack of confidence in financial advice,” Jollie says.
“I think the advice industry, in particular, copped a pretty raw deal out of the last couple of years. How do we change that? Obviously, we improve the system, we can eliminate conflicted remuneration structures, we can improve the structure of superannuation; there’s a lot of things that we’re working towards.
“But one thing that hasn’t been addressed is education, and I firmly believe that, given we have a compulsory superannuation regime in Australia…we need to go back to the grass roots.
“I think we need to go back to school…to really teach the fundamentals of superannuation, the fundamentals of investment markets, so people aren’t jumping in and out of markets when, as soon as markets fall, you have this mass shift out, as we saw, into cash. That’s a classic way to destroy wealth. We need to educate consumers on the benefits of advice; really, it’s a case of understanding what you don’t understand.”
SPAA’s Slattery says education has started.
“It’s already started, and working very well, actually, at the moment,” she says.
“I agree with the [importance of ] education, and I would link it back to that confidence issue. Our system is actually set up under the financial services regime – it was set up for the consumer – but in actual fact, it’s actually benefitted the industry.
“If you have a profession, rather than some kind of disparate advice [industry] where the consumer has no idea where to go, and perhaps the language is not uniform and imparted from a [single] information source, then perhaps the issue of a fiduciary duty, [of ] conflicted remuneration, all of those [things] actually become secondary issues.”
Shorten says disengagement from superannuation and financial planning is an issue for the industry to address, not for individuals.
“If people are disengaged, that doesn’t mean that people are stupid,” he says.
“If the customer’s disengaged, there’s a challenge for you, as opposed to the customer.
“I think there’s other challenges, along with financial literacy, towards engagement: it’s the fees you charge; and it would be really good if the industry didn’t always complain about each other to the press, because that undermines confidence.
“A bit of legitimate healthy competition’s fine; but every time we run down some other segment of the economy, you’re actually tarnishing your own brand.
“So there’s a challenge there, I think, in terms of talk about the issue, but not – play the issue, not the man, so to speak.”
BT’s Shuttleworth questions whether there’s fair competition, when, for example, the process of Award modernisation seems to favour industry superannuation funds.
“I guess, you look at that and you go,‘It doesn’t feel like a level playing field’, ” he says.
But Shorten disagrees.
“Retail funds think there is some sort of Shangri La, El Dorado, Lassiter’s Reef of monopoly rent-seeking by industry funds, and that but for the Award system, the world would be different, and there would be all these serfs freed from the domination of industry funds, who could flee to the happy lands and the sunny uplands of retail funds,” he says.
“And whilst I’m being deliberately colourful, you know, at Beaconsfield Mine, if you were on an AWA, you could only be signed into the BT fund. And good luck to you for getting the arrangement – but I’m just saying that perhaps there’s a whole lot of arrangements which are complex. Perhaps there’s a whole lot of employers who’ve set up arrangements with retail funds because they do their banking with them, historically, and that’s the fund which is the default. I’m just saying that perhaps it’s not quite one-way traffic.
