Good morning everyone, it’s a pleasure to be speaking at the inaugural Workplace Super Specialists Australia conference.
Let me first say that I am sorry I cannot be there in person. I was looking forward to engaging in a discussion with you about the financial services reforms the government is pursuing.
This week I’ll be accompanying the Prime Minister on his trip to the Torres Strait Islands as part of his commitment to spend a week every year in a remote indigenous region, working alongside our community.
Given the change of format, I will spare you all a half hour video address and instead focus my remarks on three topics:
- the importance of corporate super advice;
- the Government’s focus on lifting professional standards in the financial services industry; and
- default fund reform.
Let me start by saying that the WSSA’s members provide vital financial advice services to thousands of corporate super funds, and their members across Australia, and play an essential role in managing Australia’s superannuation savings.
With Australia’s superannuation system projected to grow from $2 trillion today to an estimated $9 trillion by 2040, the important role that you and your members play to the financial security of all Australians is clear.
The importance of corporate super advice
Australia’s superannuation system is responsible for over $2 trillion in assets under management today with MySuper products total assets accounting for $420.2 billion of this total amount.
The amount of assets under management in MySuper products is growing; indeed there was a 23 per cent increase in total assets in MySuper products over the 12 months from March 2014.
As you are well aware, MySuper products were designed to be simple, cost-effective default products. They were also designed to be transparent and comparable, encouraging greater competition to help put downward pressure on fees.
As at June 2015, there were 116 MySuper products on offer. These products were being offered by 103 different entities.
We are all well aware there is a low level of member engagement with superannuation and many people do not make active choices in relation to their superannuation.
The Productivity Commission, in its 2012 inquiry into default superannuation funds in modern awards, noted that about 70 per cent of employees are members of the default fund selected by their employer, and of those who default into their employer’s default fund, roughly 80 per cent are in the default investment option.1
These statistics highlight that we need to do more – as government and as industry. I’m passionate about increasing levels of financial literacy across the community and am interested in partnering with industry on initiatives that can make a difference.
We should not be content with current levels of disengagement. It is here that I believe you have a unique opportunity to play a role to engage directly with employees at a workplace level, in a very practical way.
I know that you have been seeking regulatory change to assist you in this area, including in relation to the effect of the Future of Financial Advice laws.
As you know, the Government’s wider package of ‘FOFA’ refinements was defeated in the Senate last year. Since then, I have been working with the Opposition to progress minor and technical refinements to the FOFA laws, to ensure that FOFA operates as intended.
One of the refinements we are pursuing will help to clarify the definition of ‘intra-fund advice’ by reference to the relevant subject rules under the Superannuation Industry (Supervision) Act. This will ensure that remuneration structures for these arrangements that do not influence the advice provided to retail clients are not caught by the ban on conflicted remuneration, when it was never intended that they would be.
As I have said before, once these announced refinements are all fully legislated, FOFA should be considered settled and given time to work.
The Government is committed to lifting professional, ethical and education standards in the financial advice sector. The Government has already taken important steps to improve transparency and accountability of financial advice providers by implementing the Register of Financial Advisers, which now boasts some 23,000 advisers. Our focus is now on the bipartisan recommendations from the Parliamentary Joint Committee on Corporations and Financial Services (PJC), chaired by my colleague Senator David Fawcett.
More than 50 submissions have been received in response to the Government’s consultation paper on this issue. The submissions showed that there is near unanimous agreement that reform is required to maintain public confidence in the financial services industry, and that new – higher – standards are needed.
In particular, a strong consensus is building around key elements of the PJC report, including:
- Establishing an industry-funded Independent Council to set and monitor education, competence and training standards;
- Lifting the minimum qualification standard for new advisers, to an Australian Qualification Framework level seven (Bachelor) degree, or equivalent;
- Introducing a ‘professional year’ for new advisers;
- Requiring all advisers to undertake higher standards of continuous professional development;
- The need for an exam;
- Requiring advisers to subscribe to a code of ethics; and
- Developing transitional arrangements for existing advisers.
We are close to finalising our approach in this area and remain focused on achieving a broad consensus, and bipartisan support in the Parliament.
I recognise that transitional arrangements will be very important to ensuring we retain experienced advisers in the industry, at a time when they will be most needed to mentor those new, younger advisers entering the industry.
That is why before legislation is introduced, further consultation will be undertaken to settle key remaining implementation, timing and transition issues.
These reforms will represent a substantial change to the current regulatory environment for financial advisers, will deliver significant benefits to consumers, and assist in maintaining trust and confidence in the financial system. It is therefore important to get them right.
I’d like to turn now to the process by which superannuation default funds are selected, an area that I know you have firm views on.
The Government is fully committed to increasing competition in the default superannuation market. I firmly believe in the benefits of competition and its power to put downward pressure on fees and increase the quality of superannuation products.
MySuper has been a strong step in the right direction, but without true competition, it will never achieve its full potential.
The FSI found that superannuation fees have not fallen by as much as would be expected; given the substantial increase in size and scale within the system. The Inquiry cited data showing that between 2004 and 2013, average fees only fell by 20 basis points whereas the size of the average fund increased by more than twelvefold over the same period.
Opening the superannuation market to competition will require consideration of an alternative to the current, poorly-conceived Fair Work Commission process for the selection of default funds in modern awards.
In considering what, if anything should be put in its place, the Government will first and foremost seek to make sure that all MySuper products are of the highest quality – not just those which are offered under Awards.
We will also ensure that the wider regulatory framework is robust and appropriate to support moving to an open and competitive market. This will include carefully examining whether existing protections against funds or related parties offering inducements or inappropriately influencing an employer’s choice of fund through the threat of industrial disputation are sufficient.
Ultimately, we want to put in place a framework that will generate the strongest possible competitive forces for the benefit of every superannuation fund member.
This is one of the most significant reform opportunities in superannuation and I will continue to consult with industry, APRA and other government agencies to ensure that our package of reforms in this area genuinely strengthens the current regulatory regime while at the same time intensifying competitive forces across the industry.
I encourage you to be an active participant in that process.
I would like to finish by thanking the WSSA for inviting me here today to be part of this conference.
I look forward to working with you to make sure that the corporate superannuation sector continues to thrive and members continue to benefit from quality financial advice and education that can significantly improve their retirement outcomes.
I also encourage you to stay tuned for the Government’s forthcoming response to the Financial System Inquiry. You can be confident that this will help to make sure our financial system is poised to meet the opportunities and challenges of the future head on, and that Australians have the confidence and trust they deserve to have in this sector.
1 Productivity Commission 2012, Default Superannuation Funds in Modern Awards, Final Inquiry Report http://www.pc.gov.au/inquiries/completed/default-super/report/default-super.pdf