The uncertainties about the Future of Financial Advice (FoFA) and Stronger Super reforms are hurting consumer and industry confidence, says JAMES BOND, chief economist of the Financial Services Council. The past three years have seen unprecedented uncertainty in the financial services industry and this was apparent in many of the discussions and presentations at the Financial Services Council (FSC) annual conference at the beginning of August. While much of this uncertainty has been an understandable reaction to ongoing economic and political conditions in Europe, the US and the Middle East, the regulatory uncertainty associated with the Future of Financial Advice (FOFA) and Stronger Super reforms are having an impact on consumer and industry confidence. Australians have responded to economic uncertainty by saving more. Australia’s savings rate has grown from 3 per cent of GDP in 2007 (excluding superannuation) to 11.5 per cent in March 2011 – returning to levels not seen since the mid-1980s. Yet at the same time, discretionary member contributions to superannuation funds in the year to December 2010 were $440 million lower in real terms than in 2009. It is not surprising that economic conditions have encouraged Australians to save more.
The global financial crisis, the sluggish recovery in the US and the rolling sovereign debt crisis on both sides of the Atlantic are affecting consumer and investor confidence. What we need to understand is why Australians are saving more but not putting these savings into superannuation and investments. Our industry is strong and critical to Australia; however, ongoing uncertainty regarding the Government’s reform agenda is affecting confidence in superannuation, investments and financial advice. The announcement by Minister Shorten at the Financial Services Council annual conference that we will see draft FoFA legislation in September is therefore welcome. Now we have this timetable, the Government needs to stick to it. There is no room for more delays. There is enough uncertainty in the economy without the Government adding to it. Draft legislation for the Stronger Super package, which was due in June or July, has been delayed until October. It now appears very unlikely the Government will be able to introduce the Bill by February next year. Between February and July, Paul Costello chaired an inclusive consultation process into the Government’s Stronger Super proposals.
Difficult issues were discussed between representatives across the industry. It is a positive development that all segments of the industry came together through the Costello process to discuss common ground and differences. Most issues were resolved and Costello’s recommendations have been handed to the Government. However, some issues remain unresolved due to the potential for unintended consequences. Principal among these is the one-price, oneproduct structure for MySuper. The proposed structure for MySuper requires funds to provide only one MySuper product at the same price for all members. This means that each superannuation fund can have only one MySuper product and can take no account of the size of the employer or the demographics of the workplace. One product. One Price. One investment strategy. However, tailored multiple products were always envisaged by the Cooper Review. It states: “The Panel also recognises that there might be situations where a master trust could have multiple MySuper sub-funds to reflect the fact that it is serving a range of different employers.” Currently, benefits of scale allow large employers to negotiate low costs for their employees, with some corporate superannuation funds providing superannuation for as low as 50 basis points.