As Michael Dwyer observed at the Fund Executives Association Ltd conference last month: fund members do not move their accounts, no matter how good or bad the performance, just as they never change their bank accounts. The chief executive of First State Super was exaggerating, of course, but most of his colleagues in the room would agree. However, if Hugh Mackay, the social researcher, is right, that might be about to change. Opening the conference Mackay took the audience on an entertaining journey through the psyche of the Australian populace over the past 25 years, culminating in what he believes to be a massive mood swing in recent years. The nub of this was that Australians had become disengaged in politics, the economy and other big-picture aspects of life from the late 1990s through to about 2005-2006. And then, for a variety of reasons, we started to become engaged once again.
John Howard missed the change and suffered as a result. The GFC has possibly accelerated the mood shift but did not cause it, according to Mackay. He says that by the end of the 1990s people became worn out by the rate of change in their lives. They decided to take a step back from politics, the environment, immigration and other social issues. He says the causes of this period of disengagement were four revolutions which took place over the preceding 25 years: a gender revolution; an economic revolution; an IT revolution; and a multi-cultural revolution. People disengaged because they felt that these big issues were beyond their control. But because of the economy, they felt they would be okay.
They concentrated on small-picture things, such as home renovations. The tide turned around 2005 and 2006, Mackay believes, but he admits to not knowing precisely why. “Perhaps it was the drought, prompting more concern about global warming,” he said. “Maybe it was Work Choices, or the anti-terror laws or our concerns about our level of debt that woke us up. For whatever reason, the period of disengagement came to an end. Suddenly we became more interested in conferences and debates… We no longer wanted to think about society as an economy.” Then, by the middle of 2008, there were signs of another rumble. There was an emerging sense of disappointment with the new Rudd Government which had delivered a lot of talk but not much action.
“Then the GFC hit. If anything saved the Prime Minister’s bacon it was the GFC,” Mackay said. With the recent “surge” in activity, culminating in some flat, rather than increasing, unemployment figures last month, there is now a “fragile hope” that the worst is over. But there is still a lot of confusion because we were “promised” a recession but did not get one. The hope is being tempered by the new spirit of caution and conservatism. For the superannuation industry, the big and obvious takeaway from all this goes back to Michael Dwyer’s observation at the conference.
Maybe, people had little or no reason to shift super funds up until the late 1990s when it became easier to do so. And then we entered the period of disengagement. Now, in 2009, we have the dual impact of the new period of engagement coupled with higher account balances and recent performance problems. The analogy with bank accounts may not be all that strong, either. From a customer’s viewpoint, banks just give a service, which is difficult to measure, and a rate of interest which is not a lot different from their competitors. Super funds, on the other hand, produce an easily comparable investment performance figure (at a less-easily comparable level of risk) with a much greater dispersion between top and bottom.