Consumers don’t matter. They really don’t.
In case you thought superannuation was about the fund members and that the 9% Superannuation Guarantee was all about your retirement savings, then think again. In the heat of the battle, sometimes civilians get hurt and anyone who has followed the Afghan and Iraqi conflicts knows that when innocent people get hurt in the wake of a war, such carnage is called ‘collateral damage’.
Consumers are ‘collateral damage’
Well, the consumers are continuing to be ‘collateral damage’ while the superannuation industry protects its business interests.
On the cusp of real change (which is still possible), the Government and its related committees have blinked first. Despite the financial disasters we have all witnessed ranging from the GFC, to Storm, to Westpoint, to the collapse of a multitude of commission-based managed investment schemes, the Ripoll committee has recommended that the Government consult with the industry about the best way to remove commissions, eventually.
Here we go again. The Government is worried about hurting the feelings of commission-based planners and the industry that supports such a remuneration structure. Oh… I know: let’s just call the commissions (payments from product providers) another name, and the Government can say they have done something.
Apparently, one of the reasons the committee went soft on commission payments was because some of the committee members were concerned about the impact on the insurance industry if commissions were removed. If this is the reason, then leave commissions on insurance products. One step at a time, and in my mind, insurance is more a transaction product rather than investment product in any case.
Always act in best interests of client
In defence of the Ripoll crew, they were up against a formidable industry with huge influence over many parliamentarians, but stating that financial planners should have a fiduciary obligation to clients and operate in the best interests of the client is like stating that drivers should follow the speed limit (even though many don’t). Of course they should, and there should be rules in place to ensure they do, and penalties when they don’t.
This ‘best interests’ con is a joke. Get out of the industry if you’re not willing to act in your client’s best interests. A financial planner already has a fiduciary obligation to his or her client, and I believe commissions are already in conflict with this obligation. Don’t consumers think that a financial adviser is acting on the consumer’s behalf, and doesn’t the adviser purport to act on the consumer’s behalf, akin to a trust relationship? Isn’t that a fiduciary relationship, even though most advisers are breaching this obligation? Just because they’re not fulfilling their obligations, doesn’t mean an obligation doesn’t exist. I can’t understand why the entire industry and Government are turning a blind eye to this nonsense.
No one has yet truly tested this in court. I have read views from lawyers arguing it is a fiduciary relationship, and others who argue it isn’t. I encourage Choice or the Industry Super Network or some other group that is anti-commission to test this theory in court, or at least, research the possibility of court action.
I’m certain there are plenty are lawyers who would jump at the chance to make financial services history. Imagine the class actions if it were to be found that the commission-based structures in place for the past 25, 30 and even 40 years, potentially breached an adviser’s obligations to his client.
Let the battles begin…
I started in the superannuation sector, working for the regulator (ISC) in 1988. Award superannuation, the predecessor to Superannuation Guarantee (SG), was still finding its feet and the major financial organisations such as AMP, National Mutual (now AXA) and the like had to make room for new super entrants – industry funds – with names like Cbus, and ARF and STA (now AustralianSuper).
The super world was changing and soon there would be a thriving private superannuation industry supporting a massive funds management sector.
In 1992, the Government introduced SG, compulsory super contributions for (nearly) all workers, and then the war really began. The introduction of SG led to the amazing growth of the industry fund sector, and to record-breaking profits for the retail and funds management industry. Riches are not enough it seems. The retail sector seems to want more money, and the industry fund sector seems to want more power.
The retail funds, represented by IFSA and indirectly, the Financial Planning Association, hate industry funds. The industry funds, represented by the Industry Super Network hate retail funds. Now, both sectors are threatened by the rise and rise of DIY super funds.
Amid the noise of the super gladiators, the consumer voice seems to have been lost, and with it, the opportunity to provide more Australians with independent and quality advice.
We have a massive super industry dependent on the political whims of the Government in power and, sometimes, the battles get ugly.
The industry funds sector seems to be running out of political steam although they’re currently winning the war. And now, we have the Liberals openly siding with the retail industry on commissions (read ‘help get us in at the next election’), while IFSA’s gleeful John Brogden is forgetting he’s no longer a Liberal politician.
Please…isn’t it time for some real change?