One of the reasons that so many industry funds have done so well is they had invested wisely in alternative assets. So our concern is that MySuper most likely will lead to lower net returns for individuals over the long term; and we think, for that reason, that is bad policy.
Gerard Doherty: If you are not spending a lot of money to make sure you really get a return on active management, then you are going to lose your way. You’ve got to add a lot of value, and you can’t get active fees for hugging the benchmark. I think active management plays a very important role. The interesting thing for us around the world is that there are still many people around the world who will pay for good active management, and it typically is the highest bidder. If you’re very good at it, if you can add value over time, someone’s going to pay for active management. It’s a bit disappointing too in the last few years, that there’s been so much emphasis on the fees, rather than on the return after fees. And through the last three years in particular, a lot of groups we’ve spoken to have said they’re trying to put more money into indexed funds and ETFs with the aim of getting the average fee down to help justify the level of the fees for advice. I would have thought that the first, and most important principle is the advice itself to the consumer, and then the fees should sort themselves out after that.
“No, it’s just a lazy approach isn’t it? Oh, I’ll just look at the weighting of the index and just go with that”
So, look, there’s a place for both of them, but I think the debate’s got away from active versus passive to let’s get fees down as low as possible to help justify our level of [advice] fees.
Hockey: Sorry, what is defined as active management now, versus passive? Passive is just index funds is it? So how is passive risk free?
Doherty: It isn’t.
Hockey: No, it’s just a lazy approach isn’t it? Oh, I’ll just look at the weighting of the index and just go with that. And then I’ll buy some government bonds.
Doherty: During the global financial crisis Australia came out of it quite well because balance sheets of Australian companies were repaired during that period of time. They weren’t repaired by indexed funds, they were repaired by active managers.
Hockey: No that’s true, that’s quite right.
Cormann: The whole concept behind MySuper from the Government’s point of view is that cheapest is best. Now the value proposition of super is much more complex than that and fund performance is an important part of it. If you lose by lower fund performance what you might gain by lower fees, then punters are not going to be any better off. The fundamental problem is that when governments try to design product, through legislation, that is not a very efficient way of going about it.
Fiona Reynolds: But what people are saying is completely wrong and uninformed and it shouldn’t be able to go without a response to it. There is nothing in MySuper that says you can not have active management – that’s just completely wrong. It’s about focusing on getting better returns for members.
Hockey: Why is the Government determining that you should have better returns?
Reynolds: Well you want to get rid of commissions. You want to have …
Hockey: But why is it the Government’s role to say you should have better returns?
Whiteley: The Government has established a system where the majority of money follows the better returning funds – so that the returns for Australian workers in their superannuation are maximised, so that they have more money when they retire. That would be a logical priority, surely?
Ian Silk: Why would the Government be interested? Because the system is a product of the Federal Parliament – the SG and the tax concessions drive the super system.
Hockey: Ah now we’re getting to the nub of it, you see. This is the point. When I was Minister for Prudential Supervision I went to John Howard and I said, “We got to have choice for super.” He said, “No, no, we can’t”. And I said, “Well hang on, mate – we don’t guarantee it.” We don’t guarantee it, and it’s too big to guarantee now, right? Therefore, people are being forced to contribute part of their wages to a fund that could fall over. And we’ve got no guarantee. So it’s the only way we could convince the Government to get choice of super in. But you’re saying now the Government has an obligation to ensure that people get a better return.
Silk: I’m saying the Government’s got an obligation to ensure the system works as well as it can in the interests of consumers.
Hockey: Well…
Whiteley: And presumably its objective would be to maximise people’s retirement savings.
Tate: At this point I’d like to speak to how do we build a financial services industry with export quality and how do we continue, vis-a-vis the Johnson report, building Australia as a centre for financial excellence.
What are you doing at BT about exporting BT’s capabilities offshore? I think there’s a bit going on isn’t there?
