Australia’s financial planners and retail super funds currently resemble kamikaze pilots, desperately flying their planes into the superstructure of the SS Cooper Review. They are seeking to somehow stop any questioning or critique of the nation’s trillion dollar superannuation industry.
The imperative for this extraordinary behaviour is the spectre of regulatory reform that could bust open the arrangements whereby financial planners recommend retail fund superannuation products to consumers in return for a commission.
While the government this week has clearly signalled its intentions in this regard, the devil will be in the detail and the expectation is that vested interests in the financial services sector will continue a desperate rearguard action to water down the announced reforms. Ominously the opposition and Steve Fielding have signalled they may block reform in the Senate.
In the meantime, the Jeremy Cooper-led government review into superannuation presently under way is clearly perceived as an ongoing “clear and present danger” by the retail funds.
Concurrent to the kamikaze attacks on Cooper is a huge PR campaign, led by representatives of retail super funds and the financial planning industry. This game plan involves replacing commissions with “asset-based fees”. This may create the perception of self-regulation, but according to the Australian Securities Investment Commission, asset-based fees should be banned because they will still leave consumers vulnerable.
Unfortunately the retail funds keep getting mugged by the reality that commissions/asset based fees don’t work for consumers. Last month, reality took the form of two new comprehensive reports. The first “Supernomics” catalogues in detail the “market failure” in Australia’s superannuation industry and quantifies for the first time the actual impact of retail fund behaviour. The second, Rice Warners “Transformational Report”, shows with great authority how abolishing commissions will not see financial planners on the dole queue en masse, but rather will facilitate far greater buy in from a currently jaded public, in accessing non-conflicted financial advice.
The retail super sector has made no attempt to debunk the findings of either report, simply resuming their kamikaze attacks on Cooper. It’s as if by ignoring reality they hope to simply wish it away. The twin strategy of the big end of town — to sink the Cooper review by any means necessary and hoodwink the public, government and commentariat that the retail superannuation industry has moved with the times and abolished commissions.
“Supernomics” is a devastating read for anyone with a public policy interest in financial services. It finds that four million Australians are paying for financial advice via the “bundling” of superannuation products, yet not receiving it. It plots for the first time how what many punters get back from super is in inverse proportion to what they put in. Fees and commissions distort superannuation returns to such a degree that for every 1% in fees paid, returns drop by 1.5%.
The Rice Warner Actuaries “Transformational Report” utilises exhaustive research by the most credible actuaries in the country to paint a far rosier picture of a post commissions reality than the vested interests would have us believe.
Reforms requiring financial planners to act in the best interests of their clients could more than double the number of people receiving financial advice and add 10% to Australian savings within 15 years, according to Rice Warner.
It also shows that incomes for financial planners would continue to increase following reforms and highlights many other benefits of financial services reform to consumers, the financial planning industry and national savings.
In one document, Rice Warner has demolished the already teetering “Chicken Little” strategy that was deployed by retail funds in response to the recommendations made by a government inquiry to require financial planners to act in their clients’ best interests. That was an exercise in apocalyptic imagery, whereby retail funds painted to government, regulators and anyone else who would listen a picture of bands of hungry financial planners roaming the streets, unemployed and destitute as a result of the abolition of commissions.
In truth there is no good reason why the retail super fund industry need to indulge in these frenzied attacks on Cooper and these clumsy exercises in obfuscation. The public policy imperatives for reform are simply too great.
There are huge dangers in positioning yourself on the wrong side of history. Just ask the kamikazes.
Jo-anne Schofield is the executive director of progressive think tank, Catalyst Australia.