The election of a Turnbull coalition government also brings uncertainty for our industry, particularly with the proposed changes to superannuation. Whilst I believe a lifetime cap is appropriate, what is needed is bipartisan support to make the super system a sustainable and equitable one for all Australians. In that context, we see the following three areas as being of the highest priority:
First, fund managers must adjust to the new world order – that is, reduced margins in the manufacturing of funds management product.
We are in a no-growth world; funds managers continue to target upwards of 30 to 40 per cent margin; yet their clients may be lucky to achieve a 5 to 7 per cent return.
If the funds management industry does not address this mismatch of customer alignment, institution asset owners will continue to internalise their asset management; whilst retail investors will maintain the dramatic trend from active equities to ETFs.
I believe both these trends are inevitable without courageous leadership globally by those running asset management businesses.
Second, we must be prepared for future financial shocks, in an environment where bipartisan support for mandatory superannuation may not always exist.
I would argue that this is best done through improving the trust consumers have in the financial system, and specifically in seeking quality financial trusted advice.
Much has been said, and achieved, in the area of professionalism and quality of advice, but while only an estimated one in five Australian adults seek ongoing financial advice and – as the data suggests – fewer still actually trust advisers. We should not kid ourselves that this job is anywhere near done.
Third, we must address continued inadequacy of savings in retirement.
Adequacy is still woefully lacking, especially for women; for the marginalised; and for those in lower socio-economic brackets.
We as an industry should continue to make the case strongly for improved adequacy; especially while recession looms, while returns are difficult, and while bipartisan political agreement in other policy arenas remains rare; – and sadly whilst political discourse is common and often toxic.
We need to make the case with consumers, as well as in Canberra, and across our own sector – both through our communications and behaviour – that improved adequacy demands at least 12 per cent Superannuation Guarantee contributions – and perhaps more bravely, as Keating recommended, 15 per cent.
We believe there are broader, systemic issues in the business of funds management that will need to be addressed in coming years, including the reduction in the number of players in the industry; and condensing the number of parties that stand between individual investors and their money, each clipping the ticket and eroding returns, for what may be questionable value.
Colin Tate is chief executive of Conexus Financial, the publisher of Investment Magazine.
This is an edited version of an address to the Financial Services Council 2016 Leaders Summit conference dinner in Melbourne on July 20, 2016. Photo credit: FSC.