Tom Garcia, chief executive of AIST talked to David Rowley, editor of Investment Magazine about tax, policy, education, campaigning and events.
How is tax reform going to impact super?
We are going to use the government’s tax white paper to think deeply about what ideas and solutions we can put forward, that delivers greater fairness, adequacy and sustainability. That means we are going to have to challenge a few ideas on the marginal tax rate and contributions caps. This is not tinkering, this is longterm strategic change for a better system – but it needs to be carefully thought out. You pull one lever and 15 other levers change.
What is the most pressing objective for the superannuation sector?
Achieving bipartisan support on what the objectives of super should be is critical. Just like any well-functioning business, we should know where we want to go with super. We have a $2 trillion pool of savings with no long term strategy. We also need to be really proud of the system we have got. Whenever I speak to anyone overseas, they all say they want the system Australia has yet internally we are trying to rip it apart.
What is the AIST position on fees?
The Financial System Inquiry has recommended that the government review MySuper in 2020. We will need to see some changes in the system by then. We recognise that investment costs are still high and that super funds and fund managers will continue to come under pressure on fees. If it gets to the point where funds do not believe they can reduce the investment cost they will look to move more investments in-house. But we also need to build up a fact base on fees and costs and get the definitions right. The debate shouldn’t be about fees. It must be about net-returns. No one has got a super system like ours. To compare us to other systems like those in Canada is complete rubbish. Certainly we can learn, but they are not comparable. We agree with the Financial System Inquiry that MySuper needs more time and we will be arguing this strongly to the government.
How is AIST innovating?
We are jointly developing a Super Tracker with Mercer which will be unveiled at CMSF. This is essentially an index that allows us to test any new policy changes to see if they are better or worse for fairness, adequacy and sustainability for the super system in Australia. These policies will be tested against clear, evidence-based objectives for super. The Super Tracker might not change government policy but it will be in their thinking and, we hope, contribute to more considered debate.
What are your thoughts on the composition of boards?
AIST stands strong on our position that the equal representation model is critical and boards should be able to appoint up to one third independent directors. I believe a lot of the reason for not-for-profit funds outperforming is the role of representative directors on the boards. They have got a complete focus on what it is going to be best for the members.
It is up to the board to determine what skill set they need to deliver the best outcomes. We must not ignore that APRA has a prudential standard on this.
I have experienced diversity on boards and I believe it makes a difference. It brings different thought processes, different ideas come and it only makes for a more robust discussion. The talent is there, it’s just a matter of looking past the usual (male) suspects. There are five to six funds left that have no women on their board. As part of our guidelines the goal should be for boards to have a minimum of 40 per cent for either men or women. We are working with nominating organisations to help them better understand the benefits of diversity.
At what stage is the Trustee Director Course?
Now that we have bedded down the first two levels of the Trustee Director Course and seen it taken up by some very high profile trustee directors – as well as new entrants to the industry – we are moving to the final stage of completing the Trustee Director Course for chairs. We are trying to achieve that higher level strategic thinking and also analyse the relationship between chairs and chief executives. We will look to use our Chair Forum series to deliver the course to between 13 and 15 chairs at a time.
Do you have any events coming up?
Twenty fund representatives are going to the USA in May to look at digital technology to understand what is changing there. AIST is working with people from Google and Amazon as well as US-based financial service providers who are using technology to revolutionise their businesses. The study tour will give funds ideas to help them compete with the retail sector which has a huge amount of resources being poured into digital. I see this as a critical component for funds to get their heads around and it is a bigger focus for AIST.
Our April 2016 Global Dialogue will be held in Boston granting delegates access to leading educational hubs including Harvard and MIT. This will help funds gain a new perspective into excellence and innovation in investment.