After a huge amount of time and money spent on studies and submissions, the Government decided that Medicare should handle these payments. “It’s a classic example. It’s in our industry and it’s in the past two years,” Vamos says. But there can be two types of consensus around far-reaching reforms, says David Whiteley, CEO of the Industry Super Network (ISN). One is rhetorical consensus. The other is real. He says the Wallis Inquiry into financial services in Australia, concluded in 1997, found that transparency and disclosure were all that consumers needed to make rational investment decisions for their retirement. But in Whiteley’s view, the billions pouring into retail super funds each year is evidence that this isn’t so. He says that in a sector-bysector comparison, industry funds have outperformed retail funds by 3 per cent throughout the past 15 years. But in the last financial year, employers channelled about $16 billion into the retail sector. “We should be asking: Why are these employers, on behalf of workers, going into quite clearly underperforming funds.
Hopefully, that’s what MySuper and Stronger Super will fix.” These hopes are pinned on the consensus reached by the Cooper Review that disengaged members would benefit from a paternalistic approach to default superannuation. This is the rationale behind MySuper, and it is pretty much the polar opposite of the Wallace view. “Consumers don’t work in that way,” Whiteley says. “They don’t think reasonably about the future. They are disengaged. We need a regulatory framework to help them in that. “We’re not talking about a revolution in consumer protection here, but about the recognition of some basic economic principles.” By this Whiteley means the outperformance of industry funds, and what he describes as a “market failure”: the massive inflows into their retail rivals. The retail sector seems to have accepted MySuper, but Whiteley is suspicious as to whether its consent to the reform is rhetorical or real. “It has a business model which isn’t necessarily conducive to much of what the Cooper Review is trying to achieve.” The phasing out of commissions under the Future of Financial Advice (FoFA) reforms has not stopped some financial planning businesses “seeking to hang on to the system of incentivising planners to sell product,” he says.
By maintaining that volume rebates and asset-based fees are legitimate ways of charging clients, the industry is still seeking to incentivise its sales forces “while rhetorically supporting the reform agenda”. “I don’t think anyone should underestimate the resources major banks and the financial planning community has, and the effort they will go to in prosecuting their case.” The core purpose of MySuper – a robust default system that safeguards disengaged members – will be affected by how much the FoFA reforms can separate advice from product. Whiteley says that because eight out of 10 people do not choose their own super fund, setting up a default system with integrity is important. “It’s about having a workable and transparent system for determining the default fund in the workplace. We’re talking about 8 million people here.” He does not believe that industry funds should be “too fazed” about the arrival of retail products that carry price tags previously seen only in the not-for-profit sector. “One of the wash-outs of Stronger Super will be industry funds offering high-performing products net of tax and fees.
