They say “never waste a crisis” and it seems some in the broader superannuation industry are adopting that mantra in the wake of the Shield and First Guardian collapses, in which 12,000 Australians lost their life savings.
The incident is a tragedy – and one Conexus Financial had hoped would never again occur after the much-needed Royal Commission I actively campaigned for, along with the rise of professional standards and the ban on investment kickbacks for financial advisers.
It goes without saying that those responsible for this serious consumer harm should be brought to justice, and that process is already starting to play out before the courts.
It is understandable, given the history, that this disaster has brought out an impassioned response from some industry leaders. But the blame game going on between the industry’s sub-sectors is counterproductive and not in the public interest.
In the wake of the incident, profit-to-member sector leaders have sought to position theirs as an “unrelated sector” to the other business model variations of super.
Deanne Stewart, CEO of Aware Super, has pointed a lack of transparency and reporting standards in the separately managed account (SMA) sector and UniSuper CIO John Pearce went as far as to describe retail funds as “The Empire” which he said was “striking back” in a reference to the bad guys in Star Wars.
Putting aside the irony of Pearce’s description given he famously ran Colonial First State – one of the “Empire’s” leading players – for years, there is some validity to these arguments.
Industry funds are right to be wary of calls for them – or more accurately, their members – to foot the bill for industry misconduct they did not cause.
And the booming managed accounts space does warrant more scrutiny over possible conflicts of interest and lack of transparency – as our Professional Planner publication has been arguing over recent years, including spearheading efforts at our Researcher Forum last week to develop an industry-wide standard for reliable performance reporting in SMAs.
But consumers cannot be expected to understand the nuances in these intra-industry arguments given the complexity of these issues. Tearing down a rival sector only serves to diminish overall confidence in our unique Australian retirement system.
It will also delay and distract the impressive new Minister for Financial Services Daniel Mulino from other important reforms such as the project to expand access to financial advice, which the vast majority of the industry supports and which we will advocate for at the Advice Policy Summit at the National Press Club in Canberra on February 23 and 24 next year.
Plus, funds including Cbus and AustralianSuper have had serious operational, administrative and member experience failures which have landed them in court, giving some little leg to stand on, as our joint venture research with CoreData has consistently shown.
On the flipside, wealth platforms and retail funds cannot get away with simply arguing that industry funds are trying to deflect from their own problems and negative headlines. Those who gave investors access to these dangerous frauds – along with the research houses, financial planners and others involved – have much to answer for.
And their request for a bailout from all super fund members or the government is hard to stomach from successful and respected organisations like Netwealth.
Its CEO Matt Heine deserves credit for his appropriate – if belated – decision to fork out $100 million to make consumers whole, as confirmed to the market on Thursday, along with an enforceable undertaking with APRA.
This outcome offers an opportunity for the heat in the industry to subside over the holiday period and to avoid it descending into another partisan conflict.
The reality is that both retail and industry funds have had both proud and scandalous moments over the industry’s 30-year history. And there are big upsides and deficiencies in both business models, with retail funds more able to invest capital and compensate when things go wrong, and industry funds able to avoid the conflicts that arise from a profit motivation.
Both are an important part of the achievements of Australia’s unique and universally applied system – one that is envied around the world. Opportunistically jumping on this crisis in the interests of competitive advantage risks undermining the public policy success.
