Super Review Magazine - April 2010

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T H E L E A D I N G I N D E P E N D E N T J O U R N A L FO R T H E S U P E R A N N U AT I O N A N D I N S T I T U T I O N A L F U N D S M A N A G E M E N T I N D U S T RY APRIL 2010

Volume 24 - Issue 3

Push for employer penalties 9 CMSF ROUND-UP Cooper finally prompts positive industry sentiment

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12 ROUND-TABLE Mixed expectations for industry reviews

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16 FINANCIAL PLANNING The best laid plans of intra-fund concessions

20 COMPLIANCE On the right track but still a long way to go For the latest news, visit superreview.com.au COMPANY INDEX

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Size and administrative inexperience do not represent appropriate excuses for employers not adopting electronic funds transfer for the timely payment of their superannuation guarantee obligations.

NEWS

board?” she asked. Furlan added that she liked “the idea of tying the payroll cycle into the superannuation contribution cycle”.

Mercer principal Russell Mason said he believed the use of electronic transfers with respect to the payment of the superannuation guarantee needed to be forced on employers, and that being a small employer did not represent an excuse given their familiarity with electronic banking and BPay. “I don’t believe just because they’re a small employer they can’t do it,” he said.

Australian Institute of Superannuation Trustees research officer Andrew Barr said he believed the failure of many small employers to comply with their superannuation guarantee obligations was attributable to a mindset.

“What’s stopping them today? …There’s a mindset that this is an impost. ‘I don’t have to pay it until the end of our quarter so I’m going to hang off as long as I can’,” he said.

AIST chief executive Fiona Reynolds said some small employers still used cheques because of the relative simplicity of administration.

mployers need to be forced to not only pay their superannuation guarantee contributions on time but by way of electronic funds transfer, according to a round-table of senior industry executives conducted during the Conference of Major Superannuation Funds.

The round-table not only endorsed a suggestion by the chairman of the Cooper Review, Jeremy Cooper, that employers face monetary penalties for persistent errors relating to the payment of the superannuation guarantee but also urged payment of the superannuation guarantee be made to match the wage cycle.

Among those backing greater compulsion on employers was the chair of the Superannuation Complaints Tribunal (SCT), Jocelyn Furlan, who said her body received hundreds of complaints a year regarding the nonpayment of the superannuation guarantee, which were passed on to the Australian Taxation Office because they were outside the jurisdiction of the SCT. “You have to have some form of compulsion and some form of penalty because why else would [small businesses] get on 3

EDITORIAL

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FINANCIAL PLANNING

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Fiona Reynolds

There’s a mindset that this is an impost. ‘I don’t have to pay it until the end of our quarter so I’m going to hang off as long as I can’.

COMPLIANCE

“You have a system in place where you’ve got cheques; two people sign the cheques, you can see the invoice, you can see the documentation – all of that; it gives you some comfort,” Reynolds said.

“Yes you can go and have some complicated sort of system where two people have to stand there and ‘put in the pin codes’ and what not, but it can often be difficult to have your two signatories in the same place.

“We’ve taken a long time to actually move more online in our own business [for] paying our bills for security reasons and fraud and all of those sorts of things, and I still have a level of discomfort about it,” Reynolds said. SR ■ For more from the Super Review round-table turn to page 12.

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APPOINTMENTS

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EVENTS

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COMPANY INDEX Association of Superannuation Funds of Australia....................................................................8 Australian Administration Services ....................................................................................6, 8 Australian Competition and Consumer Commission..................................................................8 Australian Institute of Superannuation Trustees ..................................................................8, 9 Australian Prudential Regulation Authority ............................................................................8 Australian Taxation Office..................................................................................................6, 9 Australian Workers Union......................................................................................................9 Clearing House Working Groups ............................................................................................6 Computershare ....................................................................................................................8 Conference of Major Superannuation Funds ............................................................................9 Coredata ............................................................................................................................8

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ESI Super ............................................................................................................................6 GESB ..................................................................................................................................3 Industry Super Network ........................................................................................................8 Investment and Financial Services Association....................................................................8, 9 Link Market Services ............................................................................................................4 MAC....................................................................................................................................4 Matrix Planning Solutions ....................................................................................................4 Medicare ............................................................................................................................6 Mercer ............................................................................................................................4, 8 Moneyclip............................................................................................................................4 Multiport ............................................................................................................................6

NAB ....................................................................................................................................6 Omega Global ......................................................................................................................4 Pillar Administration ........................................................................................................3, 6 RBC Dexia............................................................................................................................4 Registries Limited ................................................................................................................8 Snowball Group....................................................................................................................4 Superpartners......................................................................................................................6 SuperRatings ......................................................................................................................4 Sunsuper ............................................................................................................................4 Toowards ............................................................................................................................4 UBank ................................................................................................................................6

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Commissions mask true cost of advice AUSTRALIAN consumers have a skewed perspective of how much it costs to provide financial advice because commissions have hidden the true cost of advice for so long, according to new research from GESB. Almost half of Australians thought less than $500 per year was appropriate for a five-year financial plan, the research revealed.

About one in five thought between $501 and $1,500 was appropriate, while just 1 per cent thought $3,001 to $4,000 was fair.

“Our research demonstrates a significant disconnect between the realistic cost of providing comprehensive financial advice and what consumers expect to

Pillar makes decimal point MAJOR administrator Pillar Administration has selected technology service provider decimal to supply a singleissue advice software solution.

The selection of decimal to provide the solution has been confirmed by Pillar’s chief executive, Peter Beck, who said Pillar’s singleissue advice requirements demanded a software solution that was flexible enough to meet the needs of multiple clients.

He said the solution, when implemented, would allow Pillar to support the advice needs of its clients and their members through an end-to-end web technology application. SR

pay for it,” said the general manager of wealth management at GESB, Fabian Ross.

Consumers were confused about how to treat the advice they received, with only 40 per cent saying they would

follow a financial plan precisely. A third would follow only parts of a plan and one in 10 would not expect to get any use from a professionally prepared financial plan.

“In the absence of

education giving sight of both the true cost and value of financial advice consumers are less likely to take up advice, thinking it is both expensive and irrelevant,” Ross said.

“This will leave their

efforts to save through super subject to a range of risks, including market fluctuations, inflation and longevity at a time when they are striving to reach more adequate levels of retirement savings,” he said. SR

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Concern on default funds MEMBERS of the superannuation industry have voiced concerns about suggestions that better default super funds should be built in response to a lack of member engagement.

The chief investment officer of Mercer, Russell Clarke, recently suggested default super funds that rolled members through progressively defensive investment options as they aged could be a solution to the lack of engagement by super members.

Jeremy Kruse, a senior wealth strategist at Melbourne planning practice Moneyclip, said that while he didn’t dispute the idea, he was concerned that by shifting superannuation holders in default funds into increasingly conservative investment positions as they aged,

the purchasing power of their super would diminish over time.

There was a real risk that too conservative a position would not keep up with inflation and not provide them with an income over a 30 to 40-year period, he said.

There was no one-size-fits-all portfolio for members, but an exposure of at least 40 per cent to 50 per cent to growth assets at retirement was a good outcome, he said.

There also needed to be sufficient liquid assets to keep delivering an income stream, Kruse said.

The managing director of Matrix Planning Solutions, Rick Di Cristoforo, told Super Review that the public needed to consider the entire financial advice spectrum rather than engaging only with super, thus creating better default super

funds to fix a lack of engagement would not help address a lack of interest in their financial future as a whole.

“Just getting superannuation sorted out is too small in scope and too narrow ... engagement should be about their financial future, and that’s a much bigger, more important issue,” he said.

The managing director of Snowball Group, Tony McDonald, said that while he agreed with enhancing default funds to get better outcomes for members, for example by instituting “opt-out default fund options”, there was a risk that members would be conscripted into collective solutions without having member information readily available.

Super funds should give members the choice of opting out, but only if that

The new structure will also incorporate the financial planners in the On Track team as well as a face-to-face advice service for members.

“The beauty of this new model is that it will enable us to better tailor our services to meet individual members’ needs, from basic, largely transactional advice about their accounts over the phone to full financial plans – all within the one department,” said Sunsuper chief executive Tony Lally.

“The new structure was born out of findings from research that

did not become the “lazy way” of dealing with consumers, or lead to people giving up on engaging with members, McDonald said. SR

Super funds urged to litigate

Sunsuper expands advice service and appoints new GM SUNSUPER has announced the creation of a new member and employer services division in a major boost to its financial advice offering.

Steven Travis, who previously headed up MAC and helped develop the On Track program, has also been appointed as general manager, member and employee service delivery.

The new division will feature an integrated advice and service centre and a super advice team who will manage limited personal advice enquiries and referrals to financial planners.

Rick Di Cristoforo

Tony Lally

showed members had distinct advice needs at different stages of their lives which could not be accommodated by a one-size-fitsall advice model,” he added.

There were also plans to expand the size of the financial planning team to accommodate increasing demand, he said. SR

AUSTRALIAN superannuation funds could be costing themselves many millions of dollars by not participating in US securities class actions, according to Londonbased class action specialist company GOAL Group.

The group claimed that a recent study revealed that between 2007 and 2009 some $3.5 billion was “left on the table” with respect to the class actions and that $1.8 billion of this amount was attributable to Australian corporate and industry funds and $1.7 billion to Australian public sector funds.

The report claimed that over $110 billion had been lost by Australian superannuation funds on their investments in the period and that this should act as a wake-up call to those currently foregoing their right to claim damages through the US. The London-based group claimed there existed a substantial opportunity for superannuation funds to continue to reduce the pensions gap through class actions. SR

SuperRatings subsidiary offers advice solution Mandate win for RBC Dexia SUPERANNUATION research and ratings house SuperRatings has announced that its web-development subsidiary, Toowards, will be commercialising a within-super advice solution, with the first client scheduled to go live in the next two months.

Under the heading ‘A new world in mass superannuation advice’, SuperRatings said that the launch of the new product had been under development for more than 18 months and represented a web-based system offering limited advice consistent with ASIC Regulatory Guide 200.

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It said that the product, named SuperAdviser, already had commitments from two major Australian superannuation funds, with memberships exceeding one million.

Commenting on the new product, Toowards director Graeme D’Costa said that with the majority of superannuation members in Australia looking for single issue advice, as opposed to full financial planning, the company had developed a system that could be used by anyone, whether it was a member, a call centre operator or a financial planner. SR

RBC Dexia has won the custody administration and registry services mandate covering the newlylaunched Omega Global Government Bond Fund and the Omega Global Corporate Bond Fund.

The mandate was announced by Omega Global Investors managing director George Vassos, who

said RBC Dexia had come out on top because of its focus on investment managers and its scope of services, which allowed the new funds to be launched successfully in a short timeframe.

Omega Global Investors is a specialist fixed interest manager focused on the institutional market. SR

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Key super administrators set standard THREE of Australia’s major superannuation fund administrators – Australian Administration Services (AAS), Pillar Administration and Superpartners – have jointly developed a set of principles and protocols that they claim will make transfers between super funds quicker, easier and more economical.

In a joint announcement, the three administrators said they had agreed upon the rules covering data and money flow for rollovers – something that had evolved from questions raised by the Cooper Review into superannuation.

Commenting on the agreement, the chief executives of the three organisations agreed that it was consistent with the

direction being taken by Medicare in establishing a contribution clearing facility for small employers.

Superpartners chief executive Greg Camm said the Cooper Review had challenged the industry to improve the efficiency of the system, the three administrators believed the joint initiative effectively rises to

the challenge.

For his part, Pillar chief executive Peter Beck said the Government’s decision to appoint Medicare to operate a clearing house had provided a unique opportunity for the industry, in that it had facilitated an agreement about the protocols for the efficient and secure transfer of data and money. SR

Greg Camm

Potential changes to super gearing Customers still find comfort in cash, says UBank survey THERE could be changes in the 2010 Federal Budget to the way gearing in super operates, although there has been no official indication from the Government, according to a report on self-managed super funds (SMSFs).

More SMSF trustees are examining the gearing in super rules and implementing the strategy to obtain higher levels of exposure to direct property, according to the report.

The minutes of an Australian Taxation Office (ATO) meeting last year stated that the ATO was working with Treasury in relation to a possible announcement of a law change, according to Multiport, while the fact that the Cooper Review asked for views on the current gearing rules was another indicator that such changes could be on the way.

Another possible change would be requiring a lender to be at arms length from a SMSF, which meant there would be no question of the viability or commerciality of the loan and the asset being acquired, Multiport said.

Most major financial institutions have lending products aimed at SMSF borrowings, primarily for property acquisition, the report stated. To provide additional protection, they sometimes seek personal guarantees from the individuals to circumvent the statutory limited recourse of the any super loan.

This ensures that while the SMSF has not placed a charge from the lender on any assets beyond that which have been acquired with the loan, any potential short fall is covered by the personal guarantee. SR

A UBANK survey of customers with selfmanaged super funds (SMSFs) has revealed that a third have more than 50 per cent of their SMSF in cash.

UBank, NAB’s direct bank, found that more than half the respondents stated they have no plans to alter their current cash allocation despite improving economic conditions in Australia.

The survey revealed that a significant proportion of respondents blamed the poor performance and high fees of managed funds for their move to a SMSF, and 75 per cent said having control of their own financial destiny was the reason for their move.

“The results of this survey show that more and more people want to take tight control of their own financial destiny at a time of ongoing caution about the

Clearing house legislation hits blockage THE Federal Government has been accused of failing to live up to an election promise by neglecting to tender the provision of a superannuation clearing house to the private sector.

The accusation has come from the Federal Opposition, which has threatened to use its numbers in the Senate to delay passage of the legislation underpinning the clearing house arrangement, which has been handed to Medicare Australia.

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Superannuation and Corporate Law, Chris Bowen, and the Minister for Competition Policy, Craig Emmerson, recommitted to having the clearing house operational on July 1 and said the Opposition needed to move out of the way.

“The Coalition needs to move out of the way of a Government that is simply seeking to implement its election commitment of a small business superannuation clearing house,” Bowen said.

He said that pending the passage of the legislation, the clearing

economic climate,” said UBank general manager Gerd Schenkel. “That caution is also reflected in the fact that people are reluctant to reduce the cash component in their SMSF – despite economic data suggesting Australia has weathered the storm relatively well.”

The survey also found that 31 per cent were optimistic about the performance of their SMSF in 2010, although 26 per cent stated they still felt cautious about the year ahead.

Some 95 per cent were not considering closing their SMSF to return to managed funds; 59 per cent liked the flexibility that an SMSF provided; and nearly half claim the media influenced their decisions about the allocation of their investments between cash and equities. SR

Funds need to engage members

Chris Bowen

house service would be available to small businesses (less than 20 employees) from July 2010 and that businesses would be able to register with Medicare Australia from May 2010.

The minister said Medicare Australia had been actively engaging with both the small business and superannuation sectors through its Superannuation Clearing House Working Groups. SR

AUSTRALIANS increasingly want to know more about their super and funds need to do more to engage them or risk losing members, according to the chairman of Queensland-based ESI Super, Bob Hendricks.

Hendricks said a recent survey conducted by ESI Super had revealed members regarded their fund as their ‘partner’ before, during and after retirement and expected their fund to proactively inform them of changes to legislation, investment options and market conditions that would impact them.

He said that with the Cooper Review expected to make widespread reforms, superannuation funds would need to work harder to retain their members.

“It is very easy for funds to say their members don’t really care and therefore the funds don’t need to invest time and resources to engage with them,” Hendricks said. “However, from our experience, this is not true.”

He said members were more financially literate than ever before, wanted to be engaged and were demanding more from their funds. SR

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Apathy falling, but lack of trust in super a concern APATHY towards superannuation is falling away, but trust in super is down and fewer people feel they are prepared for retirement, according to the Mercer Superannuation Sentiment Index.

The online survey of 1,033 full-time working Australians aged 25-65 years was conducted in December 2009, and revealed that sentiment towards super declined from a rating of 42 out of 100 in December 2008 to 37 out of 100 in December 2009. Only 41 per cent rated their superannuation fund as trustworthy, a decline of 11 per cent since December 2008. While 58 per cent said they were ‘very optimistic’ or ‘fairly optimistic’ the economy would improve following recent share market gains, only 11 per cent of

working Australians felt they were thoroughly prepared for retirement.

Respondents listed loss in value, not having enough funds for retirement, low growth and low returns as their top concerns about super.

Despite a general perception that many Australians are apathetic towards their super, the survey showed that 17 per cent rated their knowledge of superannuation as strong or sophisticated, while 55 per cent are aspiring to reach that level of knowledge.

Managing director and market leader at Mercer, Australia and New Zealand, David Anderson noted in the report that while recent events have tested faith in the system, “they have

David Anderson

also shaken Australians out of the apathy that typified the attitudes many have had towards their superannuation”.

However, the survey revealed that gaps in knowledge remain. One in five did not know the investment option their super was in, and one in four did not know their current superannuation balance.

The survey also found that in looking for advice, 48 per cent of investors considered approaching their super fund while 43 per cent considered a financial adviser.

Anderson said with superannuation now the subject of two significant government reviews, the industry has a “once-in-a-generation” opportunity for the Government to make changes that will increase the effectiveness and robustness of the super system. SR

ACCC blocks Registries acquisition Australians ready to THE company that controls Australian Administration Services, Link Market Services, has found itself rebuffed by the Australian Competition and Consumer Commission (ACCC) over its bid to acquire a specialist securities registration business, Registries Limited.

The competition regulator announced that it intends to oppose the acquisition because it has concluded it would be likely to substantially lessen competition in the national market for securities registration and related services to listed companies and other entities with similar requirements, leading to higher prices and reduced quality of service.

The regulator said it had conducted extensive enquiries with listed companies, registry service

providers, the Australian Securities Exchange and other interested parties.

“These enquiries indicated that the proposed acquisition would remove one of a [very small number] of registry service providers, leaving the merged firm and Computershare as the two largest, with two very small competitors,” the ACCC announcement said. It said in addition, its enquiries had revealed that Registries currently plays an important role in the market, aggressively marketing and discounting its services to attract new clients.

“The proposed acquisition would therefore remove an important competitive discipline on Link and the only other major competitor, Computershare, leading to higher prices and reduced pressure to improve services,” the ACCC announcement said. SR

Make comparing funds easier, says ASFA THE Association of Superannuation Funds of Australia (ASFA) has called for common standards to be applied to superannuation fund investment options and definitions to make comparing fund performances easier.

The ASFA call has come on the back of the latest Australian Prudential Regulation Authority (APRA) fund level data, which was described by the Investment and Financial Services Association (IFSA) as being virtually meaningless but lauded by the Industry Super Network as proof of the outperformance of industry funds.

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Pauline Vamos

riod to the end of June last year, thus missing at least six months to the end of December during which equity markets recovered (assisting retail master trusts to outperform industry funds).

However, ASFA chief executive Pauline Vamos called for easier comparison of fund data, saying members deserved to have information presented to them in a clear and simple format so they could better understand the level of risk in their portfolio and be able to compare different investment options across funds.

“Members also deserve to know what their fund is paying to manage the underlying assets,” she said.

Vamos said ASFA would be calling on the Cooper Review to set out requirements for funds regarding how they disclosed investment returns, levels of risk and fees. SR

embrace higher SG

THE Association of Superannuation Funds of Australia (ASFA) has pointed to the additional $10 billion a year being paid into superannuation accounts – on top of the 9 per cent super guarantee (SG) – as evidence that workers are prepared to accept an increase in the SG. ASFA chief executive Pauline Vamos also said the data demonstrated many employers recognised that a 9 per cent SG was insufficient to fund a reasonable lifestyle in retirement.

“A great many employers are going above and beyond the legal requirements to help their employees achieve dignity in retirement,” Vamos said.

According to the research released by ASFA, 23 per cent of all wage and salary earners receive employer contributions above 9 per cent – typically in the range of 10-12 per cent.

“We have found there are some employer contributions that are well in excess of this amount, particularly for employees in defined benefit funds. Critics of increasing the SG say that going from 9 per cent to 12 per cent is too big a jump. Today’s research shows that, already, nearly a quarter

of the workforce is receiving, on average, between 10 per cent and 12 per cent.”

The results of the research add weight to the argument put forward by most industry bodies that the SG should be increased. A Coredata survey commissioned by the Australian Institute of Superannuation Trustees found that more than 60 per cent of those surveyed would support an increase in the SG and would be prepared to pay for the increased contribution from wages.

Commenting on the release of its research, ASFA said it pointed to the need to increase the SG to 12 per cent – a move the public is willing to accept.

“Today’s research supports the widespread desire from the community at large and recent calls by a number of prominent industrial and political figures for an increase in the SG from 9 per cent to 12 per cent.”

ASFA said the industries most likely to provide contributions above the SG are those where the public sector dominates – along with the oil, mining, construction, banking and finance/investment industries. SR

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CMSF ROUND-UP 9

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Cooper finally hits positive note THE Cooper Review into superannuation has finally won broad industry endorsement by releasing a second phase preliminary report almost entirely dedicated towards improving the efficiency and effectiveness of the superannuation industry’s back-office.

The second phase preliminary report represented a broad con-

firmation of points raised by the chairman of the Cooper Review, Jeremy Cooper, at the Conference of Major Superannuation Funds (CMSF) in Brisbane, where he referred to bringing funds’ back-offices into the modern age via broader use of Tax File Numbers and electronic funds transfer technologies.

The report won the almost

immediate endorsement of the Investment and Financial Services Association (IFSA), with its chief executive, John Brogden, saying Cooper should be congratulated for the SuperStream initiative as almost all the initiatives were ones that would assist the industry to function more efficiently, thereby lowering administration costs.

Fund execs not immune to remuneration scrutiny INDUSTRY superannuation funds have acknowledged that the remuneration scrutiny directed at financial planners will ultimately reflect back on salaries paid to super fund executives.

Australian Institute of Superannuation Trustees (AIST) research officer Andrew Barr has told the Conference of Major Superannuation Funds that the scrutiny on remuneration risked “the blow torch being turned back on us”.

Explaining the AIST’s approach to the Cooper Review, he said the likelihood of scrutiny being turned on levels of fund executive remuneration had resulted in a recommendation

that funds make such information public. Barr said the AIST was recommending that member funds publish the remuneration of their top five executives in aggregate.

However, he suggested it would be open to funds to provide more detail if they saw fit.

Barr said the AIST had also recommended that superannuation ratings houses make their commercial arrangements with funds more transparent.

He said that if funds had paid to be rated then members should be made aware of the nature of that transaction. SR

Time to shift cost of super mistakes EMPLOYERS who persistently fail to provide accurate information around superannuation contributions should face monetary penalties, according to the chairman of the Cooper Review, Jeremy Cooper.

Cooper told the Conference of Major Superannuation Funds that such measures were justified by the cost of erroneous information on the super system.

Cooper’s comments came at the same time as he confirmed the degree to which Australian employers remained trapped in a paperbased system rather than embracing electronic funds transfers.

He said that as many as 38 per cent of employers were still using cheques to pay

the superannuation guarantee and half of that number wanted to keep it that way. Cooper said this paperbased approach was costly and ultimately needed to be addressed.

He said that where processing contributions currently cost in the order of five cents per transaction, it was believed possible to get it down to as little as two cents.

Cooper said that if employers were to be penalised for persistent mistakes, the money might be paid to the affected super fund or the Australian Taxation Office. He said the penalty should reflect the time and cost of correcting the mistakes flowing from the provision of persistently incorrect data. SR

For its part, the Australian Institute of Superannuation Trustees (AIST) described the SuperStream proposals as a breakthrough in modernising the industry.

AIST president-elect Gerard Noonan said the recommendations would serve to improve efficiency and reduce costs across the industry. SR

John Brogden

Industry super funds’ boards used as ‘retirement homes’ EMPLOYER organisations and unions need to stop using industry super fund trustee boards as retirement homes, according to Australian Workers’ Union federal secretary Paul Howes.

Howes told the Conference of Major Superannuation Funds that membership of a trustee board should not be regarded as a

retirement sinecure.

He said that, instead, funds needed to take a more professional approach and seek to attract the right types of expertise. Howes said super was simply too important to be regarded as a retirement past time.

“We need to find ways to attract the right people and retain them,” he said. SR

Reynolds calls for brave new world

Service as critical as pricing in insurance

THE Federal Government has been urged to utilise the recommendations of the Cooper and Henry reviews and be “bold and brave” in formulating a new super system.

The chief executive of the Australian Institute of Superannuation Trustees (AIST), Fiona Reynolds, used her opening address to the Conference of Major Superannuation Funds to say there was a need for the Rudd Government to develop a super strategy for the next 20 years.

She said in moving forward on the recommendations of the Cooper and Henry reviews, the Government would need to work closely with the superannuation industry.

In doing so, Reynolds pointed to AIST research suggesting a strong majority of Australians wanted to lift the Superannuation Guarantee to at least 12 per cent and then 15 per cent.

Her words came just ahead of the Federal Secretary of the Australian Workers’ Union, Paul

Fiona Reynolds

Howes, calling on the Government to commit to raising the superannuation guarantee.

Howes said he remained committed to the lifting the superannuation guarantee but urged that appropriate safeguards be put in place, including prohibiting borrowing in super. He said any move towards allowing borrowing in super would be counterproductive to achieving retirement incomes adequacy.

Howes said Australia’s compulsory super regime stood as one of the great achievements of the postwar era. SR

PREMIUM pricing is no longer the single most critical issue for superannuation funds looking to issue tenders for their group insurance needs.

The Conference of Major Superannuation Funds was told by Industry Funds Services’ insurance broking principal of group risk, Nick Galanakis, that service delivery was now regarded as being an equally key issue.

“Premium price is no longer the big issue, but sustainability of premium price is certainly an issue,” he said.

Galanakis said if an insurer could not sustain its premium price then this was ultimately reflected in a diminution in services.

“If insurers are not making the right return on capital then services are affected,” he said.

Hannover Life Re senior marketing actuary Rod Berry said trustees should regard price as important but not the only issue. SR APRIL 2010

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Cutting to the chase Making the back-office of superannuation more effective and efficient ought to have been a ‘no-brainer’ for the Cooper Review.

Mike Taylor

W

hen the dust finally settles on the Cooper Review, it is likely that its Phase Two report dubbed ‘SuperStream’ will be seen as its core achievement – because it delivered precisely what the industry agrees is needed, and precisely what the Government said it wanted.

While the terms of reference of the Cooper Review traversed a range of issues, at their core were the dual objectives of efficiency and cost effectiveness. Some might argue that if review chairman Jeremy Cooper and his panel had proceeded more directly to those points, a great deal of time and energy would have been saved.

In spelling out what was meant by ‘efficiency’, the

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terms of reference stated: “Ensuring the most efficient operation of the superannuation system for all members, whether active or passive members and whether making compulsory or voluntary contributions, including removing unnecessary complexities from the system and ensuring, in light of its compulsory nature, that it operates in the most cost-effective manner and in the best interests of members.”

Indeed, any astute reading of the review terms of reference makes clear that the Government was never in the business of looking for a reinvention of the wheel. Reflecting the words of the former Minister for Financial Services, Superannuation and Corporate Law, Senator Nick Sherry, it was simply looking for a “renovation” of the existing house.

Thus, by bringing down an interim report recommending a streamlining of administration and processing arrangements relating to superannuation, the Cooper

EDITORIAL Managing Editor – Mike Taylor Ph: (02) 9422 2712 Fax: (02) 9422 2822 email: mike.taylor@reedbusiness.com.au Features Editor – Angela Faherty Ph: (02) 9422 2210 Fax: (02) 9422 2822 email: angela.faherty@reedbusiness.com.au Contributing Reporter – Damon Taylor email: damon.taylor@c-e-a.com.au Ph: 0433 178 250 ADVERTISING Senior Account Manager – Suma Donnelly Ph: (02) 9422 8796 Mob: 0404 118 729 Fax: (02) 9422 2822 email: suma.donnelly@reedbusiness.com.au

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Review in late March finally delivered the superannuation industry something capable of delivering tangible and long-lasting improvements.

What the interim report does is pull together many long-recognised initiatives capable of making the running of superannuation funds more cost effective and therefore a better proposition for members.

Those things include the use of Tax File Numbers (TFNs) as common identifiers, the greater use of electronic funds transfers and a range of other changes capable of cutting down on red tape.

Given the number of years the superannuation industry has been lobbying for the use of TFNs and electronic funds transfers and the degree to which these desires were reflected in virtually all of the major submissions, it was little wonder that Cooper’s second phase report was warmly welcomed by virtually all the industry players.

The recommendations will

also doubtless be welcomed by a Government that has clearly been looking for initiatives capable of improving the superannuation industry, without unduly affecting its fundamentally sound underpinnings and therefore undermining confidence.

However the changes being recommended are not something that can be achieved overnight. In circumstances where the recent Conference of Major Superannuation Funds was told that as many as 39 per cent of employers are still using paper-based methods to pay the superannuation guarantee, a reasonable transition to new arrangements would seem necessary.

Furthermore, the Government would be foolish to act on compulsory electronic filings until such time as its Medicare superannuation clearing house has proved workable – and until such time as the various superannuation funds and administrators have gotten their act together.

The starting point for a viable shift to a fully electronic superannuation contributions regime will be a common methodology – something which does not yet exist, notwithstanding recent progress between three of the

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four major administrators.

Nor can the changes being recommended by Cooper be achieved without legislative and regulatory change. Thus, it may be well into 2011 or even 2012 before members of Australian superannuation funds see any of the benefits actually flowing from the socalled SuperStream.

It is now more than two years since Sherry first flagged the Cooper Review, and it is clearly at risk of being overwhelmed by the realities generated by the political calendar. There are clearly those in the Government who believe that its findings will represent a low priority for a political party looking to reassert itself in the polls.

While the SuperStream proposals will undoubtedly generate genuine benefits for the superannuation industry, the more vital issue confronting super funds is what will be delivered in next month’s Federal Budget.

In circumstances where tinkering with the superannuation settings in the 2009 Budget served to undermine confidence in super, the industry should be hoping for a more positive contribution from the Government this year. SR

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Cooper Review – great The chairman of the Cooper Review shifted down a gear at last month’s Conference of Major Super Funds and his views finally resonated with key industry players.

MT: Welcome to the round table. I think a good place to kick it off is with [chairman of the Cooper Review] Jeremy Cooper and the fact that, in my view, yesterday he tended to stay on message and actually suggest something in terms of process and everything else that would, if it got through to fi nality, add some genuine savings and some genuine effi ciency to the industry. But more broadly, I’d be interested in everyone’s take on whether the Cooper Review is going to deliver what the industry wants or whether we’re at risk of it just being another exercise in canvassing the issues without actually delivering something.

FR: There’s a commitment by the Government as well on the efficiency side, so I think the types of things that Cooper talked about yesterday in terms of the tax file numbers, in terms of making rollovers easier, electronic commerce, I think that’s fairly safe ground. The industry pretty much thinks that that should happen, the Government thinks it should happen, and the panel thinks it should happen. So you wouldn’t expect that there was any reason why it can’t happen except that there are a number of parts that need to come together.

To make it work properly you have to say to employers that you’ve got to pay electronically, and you obviously need to give SUPERREVIEW

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Present: Mike Taylor - managing editor, Super Review Fiona Reynolds – chief executive, Australian Institute of Superannuation Trustees Russell Mason – global partner, Mercer Phil Collins – chief executive, IUS Life Andrew Bolderstone – managing director, Group, Tower Australia Limited Andrew Barr – head of research, AIST Jocelyn Furlan – chair, Superannuation Complaints Tribunal

them a bit of time to transition, and things like that. And we need the tax file number, so it all has to come together to make it work. So the Government still has to tell employers things that they might not want to hear – that can be difficult sometimes.

But I think that they’re committed enough to the efficiency side that it will happen.

And I suppose if we get nothing, if nothing else comes out of the review but we’re able to be a much more efficient industry, it’s easier for employers to transact, it’s easier for members to transact, we clean up the lost accounts problem, then that’s

Russell Mason and Fiona Reynolds

fairly significant.

RM: I think most employers will welcome it. I know in our experience, once you convert employers across from paper-based manual systems to electronic systems, once you make it easier for them, like most of us with new technology, once we understand it we embrace it. So I think the sorts of things Cooper was talking about and you’re talking about, I think most employers will embrace that; it will make life easier for them. I don’t think there will be a great problem.

PC: I agree with that. I think what we saw yesterday was that there was a greater concentration on those issues and I agree ... I think there’s now some sort of agreement that they’re the key issues we need to concentrate on, and I’m sure with support from the industry [it’ll] happen.

You asked the question Mike, is the report going to produce what the industry wants? What does the industry want out of this report? I’m not quite sure I know the answer to that, so I’m not sure. We didn’t ask for the

report. That doesn’t mean it’s wrong or not a good idea, but I think we had some concerns about where Cooper was headed in the first instance with some fairly ‘out there’ statements, which appear to have been pulled back a bit. But I’m just not sure what the industry itself wants out of this. It may well be no more than what we’re talking about here, administrative efficiencies, which I think now are very much possible in terms of where the conversation seems to be going. But if it’s too extensive in terms of intrusion into the way the industry is run and an industry that I believe is in fact fairly efficient rather than inefficient, then I’m not sure that’s what the industry wants. So I’m not sure of the answer to that one.

FR: Well I think from our point of view, what we wanted to see from the review was that it finally dealt with a whole lot of issues that have been hanging around for as many years as we’ve all worked in super. All of these efficiency issues, member protection, the tax file number,

all of those things have been problems and have issues about costs, hidden fees and charges, costs and financial planning. So I think from our point of view we wanted to see those kinds of issues dealt with, which was why we were fairly strong on criticising the architecture, because we felt that was going [in the wrong direction]. Now we’re pleased to see yesterday that he seemed to move away from his first thoughts.

AB: I certainly sensed Cooper yesterday was trying to draw back expectations about what was coming from the review – [he] certainly focused on the efficiency side. I think we all agree with that, the majority of measures that he took are going to be really welcomed by the industry and would make a difference, and he really demonstrated the appetite and commitment to really tackle some meaty efficiency issues there around administration and duplicate cover members, lost members, and member protection. I thought all of that was really good, but it was only one

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expectations? component of what we originally thought was much more than a review.

ABarr: I’d agree with what’s been said about the tone and the way that things appear to have been moving, but I think we’d better not be complacent about the implementation phase of it because there’s a lot of diversity, there’s a lot of different ways people do business in the industry. If we go in quickly and try and impose something, we’ll have a lot more difficulty than we really should have.

RM: [A] consultation process has to take place because I hear politicians and others saying the industry needs to be more efficient. I think the major players, the administrators, the insurers, we all want to make it more efficient, but every time we take a step forward there seem to be two new regulations or requirements that just make it more and more difficult. So help us be more efficient, and you’ll see costs down.

I think administrators, insurers, funds managers, a lot would be happy to drop costs if the environment was such where they could do it. But when you look at the complexity right now, it’s not surprising that administration costs what it does. In fact, I’m surprised it doesn’t cost more when you see what the administrator has to do behind the scenes. So that’s why I was really welcoming what Cooper said yesterday, because I think that really will be a step in the right direction.

cheques, going the paperbased route. I think he threw a figure out there of some thing like 39 per cent of em ployers are still doing that and a further half of that 39 per cent wouldn’t want to change to electronic funds transfer or whatever else is available.

How do you actually break down that barrier beyond what he is already proposing? That’s quite a big step for a lot of very small employers.

RM: I think you’ve got to force it on them, and I don’t believe that just because they’re a small employer they can’t do it. Virtually everyone around this table pays by BPay or uses some form of electronic banking, it’s not that difficult. I think we’ve got to force it upon those employers.

JF: I don’t share your enthusiasm about employers wanting to comply though. It’s not within our jurisdiction, but we get an awful lot of calls from people whose employer hasn’t paid the surcharge and we refer them to the tax office.

And I think they get hundreds of thousands of complaints about that ... You have to have some form of compulsion and some form of penalty because why else would [small businesses] get on board? But I did like the idea of tying the payroll cycle into the superannuation contribution cycle for those people because I think that would make it easier; if they were of a mind to comply, it would make it much easier for them to comply.

BREAKING DOWN BARRIERS MT: One of the things that surprised me yesterday was the data he threw out there in terms of the number of em ployers who are still writing

FR: I agree. And so that’s another change for employers.

ABarr: And it would make it a lot closer to all of the electronic

with it and it’s done.’ I reckon that’s probably what happens.

RM: I think we’re making excuses for them. There’s always a good excuse not to do something. We’ve got a myriad of passwords to things at work, our banks and everything else and we cope with it; we may not like it, but we cope with it.

ABarr: And there’s no excuses for getting your payroll wrong, and if you link the super to payroll there’d be no excuses for getting your super wrong.

JF: That’s right, and get the same penalties or similar penalties.

Andrew Bolderstone

stuff that goes on the payroll.

FR: That’s right.

RM: There’s nothing to stop them doing that today, and I do work with a lot of employers.

ABarr: What’s stopping them today? That there’s a mindset that this is an impost. ‘I don’t have to pay it until the end of our quarter so I’m going to hang off as long as I can’.

JF: And ‘I’ve got a cash flow problem, why would I pay my super earlier than that?’.

ABarr: Yeah.

PC: Yeah why wouldn’t you hang off?

FR: I understand why employers still use cheques, so I was surprised when Cooper said he didn’t quite understand why people use cheques. It’s because if you work in a small organisation and it might not be your

business, you might be running it. You have a system in place where you’ve got cheques, two people sign the cheques, you can see the invoice, you can see the documentation – all of that; it gives you some comfort. Yes you can go and have some complicated sort of system where two people have to stand there and ‘put in the pin codes’ and what not, but it can often be difficult to have your two signatories in the same place. We’ve taken a long time to actually move more online in our own business [for] paying our bills for security reasons and fraud and all of those sorts of things, and I still have a level of discomfort about it.

ABarr: If you were going to pay it quarterly and you’re going to try and do it online, how many employers are going to be able to remember the password to their super fund site for three months? Forget it. ‘What was that password? On hang it, I’ll get the chequebook out, deal

RM: And that is the secret, because the amount of mismatched contributions that administrators still receive where the paper says $10,000 and the cheque says $9,900. And the amount of work that an administrator has to put in is one of the inefficiencies – it’s a huge amount of unallocated contributions or contributions that can’t be reconciled.

MT: Well there was another thing that Cooper said yesterday, which was he believed that employers who were persistently erroneous with the data they were supplying should be made to pay a penalty either to the super fund or to the ATO [Australian Taxation Office]. How do we feel about that? From the sounds of things, it seems that they should pay a penality.

FR: Yep, I agree.

PC: I think it’s the only way it’ll work. [And it must be capable of being] enforced properly.

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Cooper Review – great expectations? ☞ Continued from page 13

that 9 per cent is not enough for nearly anybody.

JF: There’s no incentive otherwise, there’s no upside for them to comply.

ABarr: Well it was interesting because he started that presentation by saying 9 per cent is enough for this person and then he painted the rosiest possible picture he could. But I think what that presentation really highlighted is that the difficult part about making any decision in the adequacies sphere is what’s enough not only at retirement, but at every different stage in retirement. I think we’ve got to have a bigger, deeper dialogue or debate about all those different phases, the active, the passive, the frail, whatever they are. How much you need? How you’re going to get there? I think we’ve got a more sophisticated argument ahead of us.

AB: And in all these things, change is difficult. We shouldn’t underestimate small employers – super may not be their focus and changing from cheques to moving online or going fortnightly is a change, but at the end of the day the whole system benefits from everyone using a consistent practice ... The Government has to really address this and make the super sector more efficient.

FR: And it’s not going to work if at the last hurdle the Government does not compel employers to do it. That’s just going to make it a little bit more efficient, but it’s not going to go away, and we’ll be back here in 20 years still talking about exactly the same issues.

PC: We are talking about a small percentage of employers.

Most employers want to do the right thing, the big ones usually do because they’ve got the resources. A lot of the small ones ... if you go out to talk to them, if you make it easier for them, they’ll accept it. It’s only a small percentage that seems to be keen on not working with the system, but they cause a lot of the work.

THE SUPER GUARANTEE DILEMMA MT: We were just talking about compulsion for employers, I’ll move compulsion to another level ... I think we’re all pretty much agreed as an industry that 12 per cent would be a good thing for the superannuation guarantee and that soft compulsion is not really the way, it really should SUPERREVIEW

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Jocelyn Furlan

be compulsory. And there are those who say take it to 15 per cent, and there’s a certain symmetry about that, given what [former Prime Minister Paul Keating] originally en visaged. So why aren’t we d o i n g i t ? Wh y w o n ’ t t h i s g o v ernment or indeed the opposition parties embrace lifting the super guarantee?

FR: Well I think they won’t embrace it because it’s in the ‘too hard’ basket, in that you either have to make the employers pay something – and that’s a difficult thing for governments to do as employers will be out there screaming about it – or you’re going to make individuals pay, and to a certain degree some individuals won’t want to do that.

We’ve just done a poll and we

asked people the question about getting to 12 per cent, whether they would want to pay for it themselves if necessary and how much that would be, etcetera. And over 60 per cent said they would be prepared to pay for it.

Like they said if you’re on an average salary of $50,000 or something, this will cost you $30 a week.

JD: A week or a month?

FR: A week out of your pay, and people said yes they would pay for it, so I think it’s just making those hard decisions.

I suppose we also have to wait for the Henry Tax Review to see what they’ve got to say. But even [if you look at the modelling that BlackRock’s Justin Wood has done], it was clear

FR: And when I was sitting there and listening to Cooper yesterday I was thinking maybe it isn’t that you need to increase the super guarantee to 12 per cent for every age group, maybe our way of thinking about the future is having [a 9 per cent base, but you have to increase your contributions later in life].

You’re more likely to be on a lower income when you’re younger, therefore, you’re not taking money away from that, then as you get older you go up to 10 per cent, 11 per cent, 12 per cent. And, presumably, you would be earning more money at that stage.

RM: The ATO can’t enforce employers that pay and those that don’t pay.

FR: I know it will be complicated; it’s just that looking at the way some of the arguments about when people at the lower end can’t pay extra money, employers don’t

want to pay for those people.

ABarr: I think you’d have to do it as a member contribution, otherwise you’d have labour market distortions.

JF: What he says about the way our demography is going, you’d actually do it the other way around. You’d hit the adolescents, who are now adolescent till they’re 30 apparently, with 12 per cent at the beginning. You’d use the magic of compound interest and then when we’re all having our babies in our 40s and while they’re still at school in our 50s, you’d drop to 9 per cent and let that 12 per cent work for you.

FR: Cooper sort of dealt with that in terms of how you are going to miss out on the compounding, but it was really about affordability. And I thought [he made] good arguments about the caps and not [letting them] go down again for those people over 50. And he showed, particularly for women who have been out of the workforce, the amount that you then have to catch up later in life to even be at the same standard as the person who’s done the 9 per cent on the lower was huge.

JF: Yeah, you can’t do it.

PC: The question you asked in the first place is why we haven’t done it rather than what we should be doing. You answered it very well right at the front. Fiona and I think the problem is that things – and this was alluded to yesterday by Cooper and others – are quite different now to when the original proposition was put in place. We had a national wage case procedure and obviously

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the Hawke Government used that to successfully introduce this as a trade off for a wage increase, which was accepted.

Now that process is almost impossible to replicate under our system today. So it does get back to someone having to say ‘well either the Government is going to tell the employers they have to do it or people have to front up to the plate’. And even that has to be done in a different way in terms of the national coverage that it was back at the start.

So I think the issue is a lot harder now from that point of view.

It’s also a lot harder because I think that there is a misconception among the rank and file workers ... that 9 per cent is a lot of money already and another 3 per cent making it 12 per cent and certainly to 15 per cent is a huge amount of money. And it’s harder to get that concept accepted than it might have been in the first place, where there was a trade off to wages.

So I think we all agree on what should happen or we have views on the best ways of implementing an increase, which we probably agree should happen, but I think it is very difficult today, a lot more difficult than it was when the 3 per cent was first introduced.

FR: They need to have a plan though, don’t they? They need to finally bite the bullet and have a plan. Even if it takes 10 years to gradually bring in small amounts that everybody can adjust to, there’s plenty of time, employers could take it into consideration when they’re doing the next wage increases over the next couple of years ...

It shouldn’t really be that hard, it’s just about …

FR: Setting a long-term plan and vision [comes back to a lot

move. Keating had the fortitude to do it and to his credit it was his legacy and we accept it ...

I can’t see what is such a great problem with saying over the next three or four years that we will increase it from 9 per cent to 12 per cent? As you said, everybody except Treasury accepts that that’s an appropriate minimum level.

Andrew Barr

of governments focusing on what’s going to get votes now], not what’s going to be good public policy 10 years down the track when they’re not going to be the Prime Minister or the Treasurer.

ABarr: One of the problems is that the most entrenched advocates of 9 per cent is enough is the [Federal Treasurer, Wayne Swan. He’s the only person who is] consistently saying 9 per cent is enough.

AB: It is about political will, ultimately. I think there’s enough research out there to show that 9 per cent is not sufficient and everyone is in agree-

ment with that. Really, is it popular from a government perceptive to actually increase it to 12 per cent and to, ultimately, 15 per cent?

FR: Cooper had some good points yesterday about capacity to pay and when you would pay, but I think that affects the core aspect that 9 per cent is still not enough as a base level.

PC: Nearly 20 years ago I was having this debate: employers, small employers couldn’t afford the extra 6 per cent to take it up to 9 per cent and it was going to bankrupt hundreds and thousands of small businesses – it was the most unpopular political

AB: At the end of the day, it probably will be another 3 per cent. Another 6 per cent will put some small businesses under huge pressure, [but] so would the original 3 per cent, so does workers compensation insurance, so does general insurance on their building, so does everything else. Unfortunately, I think it’s a matter of principle that governments and whatever agree that this is a logical and [sensible thing and one of the costs you just have to bear]. And some of those very small organisations would probably go to the wall for some other reason if it wasn’t the 3 per cent anyway.

I don’t think you can dismiss that it does have an impost on particularly small businesses and it may, in the most extreme cases, take them to perhaps a cliff face. But to me the bigger picture is what’s required, and there is always going to be something in a very small business, the volatile nature of them and their cash flows and whatever, that will probably push them to the brink.

This is only one of the whole raft of things that’s likely to do that and I don’t think it can be put in as a reason not to progress with what is a sound, fundamental requirement for our longterm standard of living.

ABarr: Well, the other thing that’s a bit different now is that

there’s a lot more discussion and acceptance of the argument that even increasing employer contributions ends up getting paid by employees through the wage process ... That supports your argument that it actually won’t send employers to the wall, but then it cuts across the acceptability of the proposal with the general punter, so I think we’ve got to acknowledge that argument out there, take a position on it after careful consideration of how it plays.

AB: You can really gauge the cost on employers if you implement it and they’ve got a long enough timeframe to be able to factor it into their planning. You know over a short timeframe, yes it can have an impact, but over a 10 or even 15-year period [it’s] a far more modest impact. Ultimately, the 9 per cent, the 12 per cent, an extra 3 per cent or 6 per cent does need to be paid for by someone and, ultimately, it’s paid for by the employee.

JF: Maybe the way to sell it to Treasury is to do it commensurately with the increases in efficiencies … If [Treasury] says 9 per cent is enough, they must be assuming that everyone’s only got one account and paying one lot of administrative fees and engaged with their super and all of that sort of stuff to get them there, the rosy picture.

ABarr: The killer for them is that for the very low-income people, their modelling says if you go more than 9 per cent you’re giving them a replacement rate of greater than 100 per cent. So they’re richer in retirement. The thing they want to avoid is people being richer in retirement than they were in working life. SR APRIL 2010

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Working to a plan The regulatory concessions that have cleared the way for the provision of intra-fund advice represented a major breakthrough but, as DAMON TAYLOR reports, much remains up in the air.

B

etween intra-fund advice and the ongoing fees versus commissions debate, the last 12 months have held a certain amount of significance for the provision of financial advice through super. Yet despite a range of super-based financial planning options, from online tools to faceto-face plans, the question remains as to how far the super industry has come with respect to advice delivery.

The answer, according to Chris Winton, head of Equipsuper Financial Planning, is that to a large extent the jury is still out.

“It’s actually a hard question to answer from my perspective,” he said.

“Being part of an industry fund can be very insular but as a whole, I think the industry is heading in the right direction.

“There’s still a way to go but we’re certainly further along the path than we were 12 months ago.”

Looking at the inroads made by her own fund specifically, Debby Blakey, executive manager of member advice for large health industry fund HESTA, said there had been significant progress made in the last four years.

“HESTA has developed

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our advice offering over the last four years and we believe we are delivering financial advice more effectively,” she said. “Although there is still potential to improve the effectiveness, we are delivering financial advice to significantly more members following the intra-fund relief than we were able to prior to that.”

FINANCIAL PLANNING Reflecting on what had influenced super-based financial planning most in the last 12 months, JoAnn Bloch, chief executive officer of the Financial Planning Association (FPA), said that what had been accomplished as a result of the intra-fund advice relief provided by the Australian Securities and Investments Commission (ASIC) had to be congratulated.

“I think what the Government has managed to do is open up a vehicle that provides low cost financial advice. Quite obviously, that is a good thing,” she said. “More Australians are getting access to advice and they’re getting access to it earlier.

“They’ve tapped into an enormous need, so I think they’re to be congratulated.”

Bloch added that the FPA had never taken issue with what intrafund advice aimed to achieve. The problem, according to Bloch, was the uneven playing field that had been created as a consequence.

“The FPA’s issue is that ASIC is giving super fund trustees a means of accessing that financial advice vehicle where no similar means exists for financial planners,” she said. “But we’re no longer whinging about that as we may have in the past.

“Instead, we’re now lodging a submission to ASIC asking that financial planners be granted that same intra-fund advice access,” Bloch continued. “We may not have been impressed with how intra-fund advice has been put in place, but there is absolutely no doubt that it is a substantial step forward in delivering advice to more Australians.

“We’re just trying to level the playing field.”

But despite the fact that ASIC’s intra-fund advice relief was a significant dispensation when it comes to financial advice within super, it remains an opportunity not all funds have chosen to

avail themselves of, and for Bloch, that hesitation is significant.

“Super funds are certainly looking to use RG 200 [ASIC Regulatory Guide 200] and the limited advice it allows, but to their credit they seem to be adopting a conservative approach to that advice,” she said. “I think despite

the relief available, most trustees have a nervousness about giving their members the right advice.

“In many ways, they’ve adopted a position similar to that of the FPA.” For Blakey, however, the fact that not all trustees have rushed to take advantage of intra-fund advice is simply indicative of

where their super funds are placed in relation to existing financial planning arrangements.

“I think some funds have already implemented outsourced advice models,” she said.

“That is where the advice is provided under a service provider’s AFSL [Australian Financial

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Services Licence].

“For these funds it may be difficult to embrace the intra-fund provisions since the intrafund exemption only applies to the super fund trustee,” Blakey continued. “Hence they would have to unwind their existing model or at least appoint the advisers as

authorised representatives of the trustee in order to take advantage of intrafund advice provisions.

“Super funds that have not yet developed an outsourced advice model are likely to take advantage of the intra-fund advice relief.”

Speaking to the rationale behind HESTA’s

decision to offer its members intra-fund advice, Blakey said that when ASIC’s intra-fund advice relief arrived, the fund had already implemented a limited advice model under its own licence.

“Hence we had a personal advice AFSL and the framework to deliver personal advice to members on superannuation,” she said. “The decision to offer intra-fund advice under the relief was a very easy one for us to make since it simplified the process we were already using to deliver limited advice.

“In hindsight, the decision we took some years ago to offer members limited advice on superannuation was an excellent one,” Blakey added. “We made this decision simply because we felt this is essentially what our members need – where few of our members are seeking comprehensive financial advice, a significant number want more than general advice or factual information on superannuation.

“So having a framework whereby we can advise members on a suitable contribution strategy or investment allocation for them within their HESTA account is a very worthwhile member service.”

Echoing Blakey’s sentiments, Winton said that while intra-fund advice provisions had been significant, a large number of super funds would already have been happy with their

existing financial planning arrangements.

“Those funds already offering their members financial planning were and are arguably pretty happy with their current setups and structures,” he said. “But it also depends on how their financial planning arrangements are licensed.

“Equipsuper, for example, offers its full service financial planning under an external provider,” Winton continued. “For us, intrafund advice is single issue, limited advice.”

Offering a slightly different viewpoint, Geoff Brooks, manager of communications at Equipsuper, said that with a significant number of members in a defined benefits scheme, the launch of a financial planning service had been largely based on maintaining a service to members following their retirement.

“From a fund perspective, our financial planning scheme was launched two and half years ago under a licensing arrangement with Health Super,” he said.

“And retaining our membership post-retirement was a principal driver in setting it up.

“Going forward, the limited advice question is around delivery and, at the moment, we’re looking to go through our existing financial planning infrastructure rather than through the fund itself.”

Yet perhaps the more

interesting question with respect to intra-fund advice is how long it might last. Though it may have originally been intended as a temporary measure to assist members through a severe financial crisis, the move seems to have gathered a number of proponents, and according to Bloch, it is a change that might well become permanent.

“I think it is here to stay,” she said. “And I wouldn’t be surprised if the Government thinks not just about giving financial planners access to intra-fund advice but also about extending it beyond superannuation.

“If they’re confident about limited advice and confident that the right advice is being given, why not go beyond that?”

Bloch asked. “There are certainly some great opportunities here.”

Similarly, Winton said that while intra-fund advice might have been a temporary initiative out of the global financial crisis, he felt that it was something that could hang around.

“Industry-wide, there’s a focus on making advice more affordable and more obtainable,” he said. “And intra-fund advice feeds into that.”

From a broader communications perspective, Brooks said that Equipsuper’s member communications research had been showing less and less tolerance for information members might

deem irrelevant to their circumstances, particularly in the case of the younger demographics.

“In line with that, I suspect the demand for personalised advice will parallel the demand for personalised communications,” he said. “There are already a number of ways in which intra-fund advice is being delivered, whether that be online or direct, and I think consumers’ increasing demand for relevance will probably mean that intrafund advice is here to stay.”

Looking at the longevity of intra-fund advice as well as how effectively it is solving the cost dilemma proposed by a financial planner giving advice on a single issue, Blakey questioned the impact of intra-fund advice on financial planners.

“Having seen how much intra-fund advice can benefit members, we certainly feel it is here to stay,” she said. “As more funds offer this service, we believe it may ultimately become a common part of basic superannuation fund service.

“But in my opinion, it is clear that financial planners historically have not been interested in the single issue advice area and certainly not if paid an appropriate fee for the service,” Blakey continued.

“Hence I don’t see intrafund advice having Continued on page 18

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Working to a plan ☞ Continued from page 17 much impact on advice delivered by financial planners.

“A revision of planner remuneration models, and in particular the removal of trailing commissions or asset based advice fees except where a documented service agreement exists, could have an impact on this – for example, the service agreements for corporate super plans could well include single issue advice, and that would see financial planners operating in this area in some way.”

For Bloch, the intrafund advice dilemma is that the system isn’t working to its full potential.

“If it had the right people and competent people in place then I think it would achieve its objectives entirely,” she said.

“But the fact is, this is a change that is still fairly new and FSR [Financial Services Reform] is relatively new as well.

“We have to give it time so that we can get its various bits and pieces right but if we can do that, it’s a system that will be highly effective.”

FEES DEBATE Of course, the delivery of financial advice has not been impacted by intrafund advice alone. Despite what seems to be a clear financial services industry direction towards fee-for-service, the fees versus commissions debate seems to continue in SUPERREVIEW

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various quarters, but according to Brooks, not all super funds are convinced one way or the other.

“I don’t think there’s a general conviction one way or the other within Equipsuper,” he said. “But I think the debate is more around what you get in return for what you pay.

“There’s some validity in the concept of people not wanting to pay an upfront cost for advice, of wanting it to instead be an almost invisible cost,” Brooks continued. “It’s a matter of psychology and the means of the person involved.

“Can they afford advice in the first place? We have to treat the consumer with some level of respect because informed choice is important.”

By contrast, Bloch said that as far as she was concerned, the fees versus commissions debate was one that was well and truly over.

“Frankly, I think that while a minority may be raging on, this is a debate that’s over,” she said. “I suppose if there is any sort of ongoing debate, it is on whether the Government legislates or mandates a fee-for-service or whether it leaves the financial planning industry alone to adopt the structure itself.

“The war is over – it has just been perpetuated because it was such a big issue and, more particularly, because it was an effective marketing exercise for various people.”

Yet the other side of the fees versus commissions debate is how fees can best be transferred to members in exchange for advice. Tax deductibility, the ability to deduct fees from super account balances – any number of payment methods have been proposed in the past, but for Bloch, there is no obvious answer.

“There’s no silver bullet answer because no consumer fits into one box,” she said. “When it comes to financial advice and how its fee is paid, the FPA is looking for four things: the advice fee can’t be paid for by a product provider, the fee has to be distinct from any specific product, it has to be transparent and revisited annually and, finally, there needs to be an ability to switch the advice fee off,” Bloch said. “But there also needs to be some flexibility because while an hourly rate might be laudable, not everyone is able to pay thousands of dollars as an upfront cost and some may only need financial advice once and then they’re off.

“What we need is to set underpinning principles that are transparent and relevant but that also give choice on how that fee can be paid, because with only one system, we would be disenfranchising a whole lot of people.”

Winton said from a superannuation point of view, being able to deduct financial advice fees from a member’s account would

definitely solve a number of the problems in advice delivery.

“It’s certainly a way we’d like to go and preferable to delivering a member any sort of bill for what we’re telling them,” he said. “It would allow us to engage a greater number of members and solve a large part of the fee issue surrounding financial advice.”

However, the hurdle, according to Brooks, would always be the sole purpose test.

“The sole purpose test is the stumbling block for that idea,” he said. “It would be all well and good if the financial advice being delivered applied only to superannuation, but problems are likely to come when it applies to personal advice as well.”

From Blakey’s perspective, debate over how

Our only recourse was to refer them to our outsourced provider of full financial planning advice.

advice can best be paid for is likely to continue within the super industry for some time to come.

“These outcomes may be impacted by legislative change,” she said.

“But it is likely we will see more fixed fees for service – that is dollar fees rather than assetbased fees.

“There is no doubt that tax deductibility for personal financial advice fees is now firmly on the agenda and we may see some concessions on this following the various reviews,” Blakey continued.

“I assume further discussion on this aspect for superannuation monies will follow.”

REGULATION There seems little doubt that despite extensive discussion of fees versus commissions and

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the merits and consequences of intra-fund advice, the financial planning industry, and by extension Australia’s super industry, is going through a period of evolution with respect to advice delivery. To date, the regulation and legislation in place around financial advice has perhaps been seen as provoking fear on the part of financial planners, and according to Winton, it is arguable that the quality of financial advice has been affected as a consequence.

“I’d probably say that current regulation does affect the quality of financial advice,” he said.

“I think financial planners are always a bit fearful due to what I see as overregulation of the industry.

“It’s just my opinion, but I do see some areas as being a bit over the top and I do think it impacts advice,” Winton continued. “Advisers can’t help but be reluctant to take the next step with the advice they may be delivering.

“It can be a bit of a dead weight.”

Winton said intra-fund advice’s intention had been to provide a better transition between singleissue advice and a fullfledged financial plan, and it would be interesting to see how well it achieved that.

“The idea with intrafund advice is to bridge that gap,” he said. “But as it’s still fairly new, it

remains to be seen how effectively it can do that.

“It sounds good in theory but in practice I think the jury is still out.”

Blakey’s take on the state of play of financial advice legislation and regulation was more positive.

“With the advent of intra-fund advice, I think we have a very good regulatory framework,” she said. “Prior to the intrafund advice relief there was quite a gap between general advice and personal advice.

“But intra-fund advice and the guidelines issued in RG 200 regarding the delivery of factual information, general advice and personal advice have certainly filled this gap.”

Focusing on the gains that have already been made, Bloch said that despite its faults, FSR had placed the financial planning industry in good stead.

“It’s a regulatory regime that has its flaws but is, on the whole, a robust framework,” she said. “No one likes to be regulated and there is always going to be some degree of frustration at both the regulation itself and at its cost, but FSR has delivered good reforms and good structure.

“The challenge is to ensure that it remains contemporary and relevant,” Bloch continued. “And intra-fund advice is representative of that.

“The issues we’re seeing are on the periphery – they’re not in the main.”

At the end of the day, the consensus seems to be that financial advice is something that super fund members need to have readily available to them. The obligation upon individual funds is to provide that advice in such a way that they are fulfilling their members’ needs from the very basic to the complex.

For Blakey, that is the ideal, but it is a point that the super industry has not yet reached.

“I don’t think we can say yet that financial advice is readily available,” she said. “There is work to be done to further develop the advice programs of funds, in particular embracing, web advice delivery and implementation.

“I think many funds still offer two extremes of advice – general advice on the one end of the scale and full financial planning on the other – with nothing in between,” Blakey continued. “I think it is very important to have something in between.”

Blakey said that at HESTA, prior to the introduction of a limited superannuation advice model, the executives had been frustrated at their inability to advise a member on simple issues such as how much insurance was appropriate for their personal situation.

“Our only recourse was to refer them to our outsourced provider of full financial planning advice,” she said. “We believe it

is very important that we now have an education program providing factual information and general advice, but it is equally important to be able to take the member to the next step by giving them simple single issue advice at an appropriate cost, which in our case is included in their administration fees.”

From the financial

planning perspective, Bloch said that fund members who were clients of financial planners were obviously the best placed with respect to advice.

“They’re certainly the ones getting the right level of service and the ones being well looked after, she said. “It’s the consumers outside of financial planning that are

the concern.

“As a broad financial services industry, we need to raise awareness of the value of advice, of where it can be obtained and we need to continue to work on its cost,” Bloch continued. “Because what we’re aiming for is more people getting access to the right advice at the right price.

“It’s that simple.” SR

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Dealing with change A strong regulatory environment and strict compliance may have seen the Australian super industry survive the GFC but, as DAMON TAYLOR reports, a rapidly changing environment means major challenges remain.

T

he Australian superannuation industry may be responding to the demands of the Cooper Review and implementing changes flowing from recent regulatory changes and the Anti-Money Laundering and Counter Terrorism Financing (AML/CTF) Act, but the challenges confronting compliance teams are far from over.

Regulatory oversight and compliance may have been the factors that have helped the Australian financial services industry weather the global financial crisis (GFC), but further change seems inevitable.

The chief executive of the Association of Superannuation Funds Australia, Pauline Vamos, believes current legislation no longer matches what is effectively an evolving environment.

“I think the first thing to say is that the super industry is in a time where it has a number of controls in place to ensure compliance with current legislation,” she says. “Disclosure, advice, statutory returns: they’re the key areas currently being reviewed, but that also means we have an environment where there is a risk of not looking at the accuracy of those controls – simply because we know they’re going to change.

“The problem is that current regulation hasn’t kept pace with the change that’s been occurring in the super industry for a number of years now,” Vamos continues. “And that means we have legislation that is now out

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of step with the industry and its members’ needs. There’s a mismatch there that needs to be rectified.”

In a similar vein, Angela Thurstans, executive manager of compliance and risk for building industry super fund Cbus, says that the industry’s current level of legislation and compliance requirement is probably more complicated than it needs to be.

“Legislation and compliance change has happened over a number of years in a patchwork fashion,” she says. “And as a consequence, the SIS [Superannuation Industry Supervision Act] and Corporations Acts are far from the easiest pieces of legislation to navigate within.”

As for specific areas of legislative complexity, Thurstans says that the disclosure regime present within the Corporations Act is definitely a good example.

“The disclosure regime is a mess, but one of the good things coming from [Jeremy Cooper, former deputy chairman of the Australian Securities and Investment Commission (ASIC)] preliminary reports is his belief that [the Financial Services Reform Act] got it wrong,” she says.

“Cooper has recognised that superannuation is a unique product and that you can’t lump it in with other financial services products.

“But while that recognition is timely, there are bits and pieces in the SIS Act that need looking at as well,” Thurstans continues.

“There seems to be a habit within this industry of making legislation harder than it needs to be, of having a principal Act and then regulations that can effectively change the entire Act. It makes for a very complicated compliance road map.”

Vamos says that the industry’s complexity issues stem from a number of grandfather provisions that exist within super legislation.

“Within different products members have been subject to different laws that were grandfathered in,” she says. “But that’s one of the key outcomes I think we’re likely to see from the Cooper Review.

“SIS only really caters for super fund members who aren’t wanting investment choice, and the reality is that we now have an environment in which members want either guided or full choice – neither of which were envisioned originally,” Vamos

continues. “Post-retirement also isn’t taken into account, and that’s key because the super system doesn’t stop at ages 55 to 60 anymore.”

For Damian Hill, chief executive officer of the Retail Employees’ Superannuation Trust (REST), three areas of current superannuation legislation stand out for their complexity – but he does not envision a need to drastically overhaul the SIS Act. “Certainly AML/CTF has added to the complexity of compliance,” he says. “Taxation is always very complex as well, and then the last one is probably disclosure.

“However, I believe the SIS Act is working reasonably in its current form,” Hill continues.

“There are of course areas where the industry has developed or will want to develop that need review, and certainly post-retirement is an issue, but I can’t

see a need to throw the whole lot out and start again.”

“There is probably a case to modernise, but I think Henry [Australia’s Future Tax System Review, led by Ken Henry, secretary to the Treasury] and Cooper will have a reasonable impact in that direction.”

Maintaining what seems to be a common view throughout the industry, Thurstans says that given multiple super sectors and a choice environment, there is room for significant SIS improvement.

“The super industry has significantly changed, even from where it was 10 years ago,” she says. “There are fewer funds and bigger funds, but while there have been a number of operating standards imposed from SIS and we’ve seen updates, it hasn’t been looked at in its entirety since it was originally brought in.”

Thurstans points to the

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COSTS

specification of in-house assets as a perfect example of how unwieldy the SIS Act could become.

“That’s a real dog part of the legislation,” she says. “It makes it very hard to maintain ongoing reporting and compliance, and I don’t think it’s looking at what the key risk is.

“There could be a lot of work done on SIS and it’s a pity that when the new operating standards came in, existing legislation wasn’t looked at to see what could be taken out or modified,” continues Thurstans. “I don’t know that we need a complete rewrite, but it could stand to be reviewed on the basis of where the industry is now placed and what its major risks are. There will certainly be a legislative flow-on effect if, as Cooper has suggested, we see a change to the shape of the entire super system.”

While unnecessary complexity is undesirable, it is also true that such complexity comes at a cost. Obviously that cost, and the cost of compliance in general, has to be borne by members at some point and in some form.

“The [super] disclosure regime accounts for a significant portion of compliance costs,” Thurstans says. “But it’s not just internal compliance on this documentation, it’s also external.

“Being very conscious of the regulator, a lot of super funds outsource compliance audits and document checks – it can be a very expensive proposition,” Thurstans continues. “But with so much frequent change as well, a super fund is lucky if it has a PDS [Product Disclosure Statement] that can last a 12month period in the first place.”

Providing an example of such change, Thurstans points to legislative amendments concerning temporary residents.

“That change had to be put in PDSs, but realistically, how many people was it going to affect? Surely a different approach could have been taken,” Thurstans says. “A large component of compliance cost is on the disclosure side and it’s not restricted to PDSs – there are also benefits statements, the website and so on.

“They’re more cost effective to change but there’s still work to be done on the back-office side,” she continues. “And then you can add to that the different licences we’ve needed over the past few years: FSR, Safety in Super [Superannuation Safety Amendment Act 2004], etcetera. As a super fund executive, we really haven’t had long periods of time where we’ve been allowed to just get on with it.”

For his part, Hill also admits that overall disclosure requirements are one of the larger costs

involved in super compliance.

“In the case of PDSs, we’re trying to protect members but if they’re not reading it, the question is whether we’re missing the point,” he says. “I think we’ve been seeing moves towards shorter PDSs, and I think that is definitely a step in the right direction.

The focus has to be on hitting the key points rather than death by a thousand pages.”

Alternatively, Vamos’ focus for compliance costs is less on disclosure and more about advice and overall efficiency.

“PDS requirements have been in place for quite some time so I think that’s pretty much business as usual,” she says. “But there are clearly some issues around the current advice regime and the grey areas that exist between general advice and personal advice. They were somewhat

Pauline Vamos

cleared up by RG200 [ASIC Regulatory Guide 200], but the issues seem to continue.”

According to Vamos, the largest issues faced by the super industry with respect to compliance are related to efficiency.

“And I think that’s what super legislation is set to move towards,” she says. “We’re looking for legislation that lowers costs through things like the tax file number and employers having to provide a minimum level of data to funds. It won’t be a move towards more

complex legislation but rather towards the adoption of electronic standards.”

But while compliance change and the cost that comes with it has been a superannuation reality to date, there is the question of whether a cost/benefit analysis has taken place before that change is carried out. After all, the last thing the super industry wants is legislation that is priced higher than it is worth.

And encouragingly, Vamos says that she can see both the Government and individual regulators gaining a better understanding of the need for that analysis to take place.

“The impact assessments conducted on the back of legislative change have improved a great deal through the last few years,” she says. “And it’s an audited process, so I think there’s greater scrutiny there than there may have been in the past.

“With a lot of compliance, super funds get no choice – they just have to do it,” Vamos continues. “The discretion comes in on the fund’s controls and infrastructure to monitor whether or not they are compliant, for example whether the advice being delivered to a member is personal or whether it comes under RG 200. The question to be contemplated is the cost of that compliance, and it needs to be taken into account within any business development plan.”

Thurstans suggests that the cost/benefit analysis for legislative change is something that the Government and superannuation’s regulators can handle better.

“I haven’t really seen that analysis taking place within Cooper, for instance,” she says.

“The new super structure being proposed seems to have no real consideration for cost – it’s as if it hasn’t been factored in.

“Other reforms have asked that question,” Thurstans continues. “But it’s an area that can

be quite hard to quantify. You don’t always know what the impact of legislative change will be until you’re in the thick of it and then you’ve got the cost of new personnel, new software and so on. That’s something I believe the Cooper Review needs to be very mindful of.”

Another point about compliance to have come out of the Cooper Review is whether a single regulator will better serve Australia’s super industry – as opposed to what has been dubbed the ‘twin peaks’ model.

The argument is that the twopronged regulation approach has seen the super industry through a severe financial crisis – but for Thurstans, it isn’t quite so simple.

“For a start, I’d argue that current super regulation isn’t a ‘twin peak’ model at all,” she says.

“Yes, there’s ASIC [the Australian Securities and Investments Commission] and APRA [the Australian Prudential Regulation Authority] but there’s also the ATO [Australian Taxation Office], AUSTRAC [the Australian Transaction Reports and Analysis Centre] and the Privac Commissioner as well.”

“It’s more like five regulators and counting, and the main problem we have is that our regulators don’t talk to each other very well.”

Thurstans continues by saying that the industry can do a lot worse than developing a forum where regulators talk to each other and the wider super industry more effectively.

“But that isn’t to say that I’m in favour of having a single regulator,” she adds. “As things stand, the legislation is set up for a multi-regulator system – but there continue to be certain issues that leave a lot parties within the super industry scratching their heads. So let’s make sure that we have good Continued on page 22

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Dealing with change ☞ Continued from page 21 communications between regulators and a consolidated front in the industry.”

Hill says that he can also see both sides of the single versus multi-regulator argument.

“I think it’s probably always preferable to have one regulator in the interest of reducing both communication difficulties and inefficiencies in reporting,” he says. “But given how Australia has handled the GFC, and given that there have been no failures within the super industry, I think it more than likely that the current regulation model will continue.”

From Vamos’ perspective, the most significant issue with a multi-regulator model is in what lies in the grey areas between regulators’ responsibilities.

“The biggest gap is this,” she says. “With multiple regulators there will always be a risk of things falling between the cracks.”

Illustrating her point, Vamos says that there are currently two areas of the current regulation model where regulator responsibility remains unclear.

“The first is in downstream investment by super funds,” she says. “And while APRA may look at the controls in place, there’s no obligation on either party to follow that money all the way down.

“The second needing clarity lies in early release and identity fraud,” Vamos continues.

“The industry has four regulators in that area and yet there continues to be a lack of ability to prosecute the people actually committing that offence.”

Vamos says that duplicated reporting requirements are also a concern underneath a multiregulator model.

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pricing breach and must inform both regulators, both look at it from different perspectives.

“Super funds then have to please regulators looking at things from two different angles and it can mean double the resources and double the cost,” Vamos adds. “And if a fund has four managers or executives spending three hours with one regulator and three hours with another, there’s unproductive time there. It all comes at a cost, but the first step here has to be looking to fill these gaps.”

INDUSTRY CONSULTATION Related in many ways to whether a cost/benefit analysis should being undertaken before any legislation change takes place is the issue of industry consultation. If the current Cooper Review and its numerous submissions are any indi-

Damian Hill

cation, then ostensibly this seems something already in place and yet, according to Vamos, the industry perspective is somewhat different.

“The biggest issue here is timing,” she says. “While there is certainly consultation, it’s meaningless if the industry isn’t given time to respond in an orderly and informed way.

“In the case of Cooper, we’re talking about three different phases, hundreds of questions and a very short lead time for industry response,” Vamos continues. “But these are complex issues, so giving informed feed-

back within such a short timeframe has been far from easy.”

Echoing Vamos’ thoughts, Thurstans says that industry consultation, or rather the timing of that consultation, is something that can definitely be improved.

“Reviews of this nature seem to have a really bad habit of releasing things towards the end of the year,” she says. “So I’d ask them to look at when they’re releasing and at how much time they’re giving the industry to digest and give back meaningful commentary.

“The answer here is probably quite simple – just don’t release anything in December. It’s just a bad time of year.”

Taking a different tack, Hill says that while the Cooper Review has an ambitious timetable, it should be remembered that it remains a system review.

“The process still requires a Government response and I expect further consultation will take place when that happens,” Hill says. “That’s the point at which it will be important for the industry to engage and the focus will be on ensuring that any regulatory change that does come through does so by providing benefits to members.”

Of course, in the midst of so many significant reviews relat-

ing to superannuation, there is a concern that proposed legislative and compliance change can be reactive rather than measured. Demonstrating the point, a recent submission to the Cooper Review by SunCorp Life warns against reacting to a ‘moment in time’ with respect to the GFC and increasing legislative complexity. But for Vamos, such concerns are unfounded.

“To be honest, I don’t think that is what’s happening here,” she says. “The industry acknowledges that it currently has a number of regulatory roadblocks and inefficiencies.

“In the past several years the industry has grown and matured, its membership has diversified and account balances have increased,” Vamos continues. “So with that in mind, it’s not surprising that there’s a need to review superannuation’s legislative framework. Quite the contrary, I think it’s timely.”

Similarly, Thurstans says that the broad outline of the Cooper Review does not seem to be any sort of reaction to the GFC. “I don’t think Cooper is doing that,” she says. “The Safety in Super reforms were probably a reaction to larger fund issues, but Cooper is looking at efficiencies within the super industry. It’s not really looking at investment practices

or risks and, on that basis, I think any outcomes will be measured and not knee jerk.”

By contrast, Hill says that while there are certainly lessons to be learned as a result of the GFC, they are lessons that won’t be immediately apparent.

“They’re lessons that may take some time to understand,” he says. “And yes, there is always a risk of knee-jerk reactions but that goes far beyond the regulatory environment.

“It’s not unusual for regulatory compliance to swing from too easy to too harsh,” adds Hill.

“And while that may not happen, while Australia has come through the GFC well with respect to regulation, I can’t see the industry being immune to some change.”

The focus of Australia’s super industry seems firmly fixed on recovery. But with the outcomes of Cooper and Henry still pending, change is in the wind, but according to Vamos, the broad compliance issues being discussed are the right ones.

“The broad issues have certainly been raised,” she says.

“But what’s important now is getting them resolved.”

Thurstans says that while the future of compliance is still a huge unknown, she is prepared for interesting times ahead.

“It’s a little bit hard to say where we are right now [with respect to the Cooper Review],” she says. “It’s still a bit of an unknown in terms of where the review is going to end up but certainly, if the structural changes being proposed come through, the compliance implications are huge.

“The beauty of compliance is that there will always be something,” Thurstans continues. “If you like change, compliance and risk management is the place to be because it will always be interesting to see how that change can be navigated in the best interests of members.” SR

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www.superreview.com.au

Events Calendar Super Review’s monthly diary of superannuation industry events around Australia and abroad.

APRIL AUSTRALIAN CAPITAL TERRITORY 8 – ASFA Roadshow 2010: Cut through the white noise. Venue: Pavilion on Northbourne. 242 Northbourne Avenue, Canberra. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

TASMANIA 13 – ASFA Roadshow 2010: Cut through the white noise. Venue: Churchill Room, Salamanca Inn. 10 Gladstone Street, Hobart. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

SOUTH AUSTRALIA 14 – ASFA Roadshow 2010: Cut through the white noise. Venue: Intercontinental Adelaide. North Terrace, Adelaide. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

QUEENSLAND 15 – ASFA Roadshow 2010: Cut through the white noise. Venue: Kennedy Room, Sebel and Citigate. Cnr Ann and Roma Streets, Brisbane. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

20 – ASFA Luncheon. Online branding – Heroes, villains and the transfer of power. Speaker: Bruce Stafford, Managing Director, Longship Financial Marketing. Venue: Stamford Plaza Brisbane. Cnr of Edward & Margaret Streets, Brisbane. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

NEW SOUTH WALES 19 – ASFA Roadshow 2010: Cut through the white noise. Venue: Wesley Theatre, Wesley Conference Centre. 220 Pitt Street, Sydney. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

VICTORIA 14 – ASFA Luncheon. Adequacy – the best way to get there?

Panellists: Scott Donald, Faculty of Law, University of NSW; David Holston, Head of Consulting – Melbourne and Executive Director, JANA Investment Advisers; Kate Wood, Director, AGEST. Venue: Park Hyatt Melbourne. 1 Parliament Square off Parliament Place, Melbourne. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

21 – ASFA Roadshow 2010: Cut through the white noise. Venue: Arthur Streeton Auditorium, Sofitel Melbourne on Collins. 25 Collins Street, Melbourne. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

WESTERN AUSTRALIA 20 – ASFA WA Super & Investment Forum. Venue: Hyatt Regency. 99 Adelaide Terrace, Perth. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

22 – ASFA Roadshow 2010: Cut through the white noise. Venue: Terrace Ballroom, Perth Hyatt Regency. 99 Adelaide Terrace, Perth. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

NORTHERN TERRITORY 29 – ASFA Roadshow 2010: Cut through the white noise. Venue: Ambassador Room, Crowne Plaza Darwin. 32 Mitchell Street, Darwin. Enquiries: ASFA Member Services Unit. Ph: (02) 9264 9300 or 1800 812 798.

Fax details of conferences, seminars and courses to Super Review on (02) 9422 2822

Mercer’s key appointments Investment consultancy Mercer has continued its expansion, announcing several appointments for the first quarter of 2010. ercer has appointed Graeme Mather to the newly created role of head of superannuation investments for Australia and New Zealand.

Commenting on Mather’s appointment, Simon Eagleton, business leader of Mercer’s investment consulting

M

business in Australia and New Zealand, said: “We have created a new position … to enhance our consulting capability in the areas of defined contribution investment option and strategy design, and reinforce our capabilities in the asset-liability management of defined benefit

Australian Unity Investments (AUI) has appointed Leonie Pratt as its chief operating officer.

Pratt has more than 20 years of experience in the financial services industry, having worked in various investment, accounting and portfolio roles at State Street, Westpac Financial Services and Rothschild.

She has come to AUI from Intech Investment Consultants, where she was head of institutional client services.

Head of AUI David Bryant said Pratt’s strategic planning skills, focus on delivering results and leadership abilities are well known to the AUI team.

“Her experience in institutional client development, investment operations support, and Asian business development makes her particularly wellsuited for her role at AUI,” he said.

Skamvougeras has over 14 years of experience in the industry, joining Perpetual from CPH/Ellerston Capital where he managed a long/short global equity portfolio.

Commenting on Skamvougeras’ appointment, Cathy Doyle, group executive of Perpetual Investments business services and chief operating officer of Australian equities, said: “He has an in-depth understanding of the disciplines around the stock shorting process, skills in investing and trading across various asset classes and a strong understanding of Perpetual’s culture and investment philosophy.”

Tan joins Perpetual from Platinum Asset Management where she worked as an equities analyst for the Platinum Asia Fund. She has also worked for MMC Asset Management, the Reserve Bank of Australia and the Australian Prudential Regulation Authority.

Tan’s role will be to focus on the range of small cap stocks and international stocks, particularly in Asia.

“We believe her strong analytical skills and her fluency in Mandarin make her

Perpetual Investments has appointed Paul Skamvougeras to manage its long/short fund, Share Plus, and Rosemary Tan as an equities analyst with the Australian equities fundamental asset management team.

schemes.”

Mercer has also appointed several senior associates, including Jennifer Cowan and Rebecca Dixon, who join Mercer’s global alternatives research boutique and responsible investment teams, respectively. Hendrie Koster will specialise in investment strategy, portfolio construction and manager selection.

Jo Allen joins the investment operations specialist team, Mercer Sentinel, to focus primarily on daily and event-driven operational risk. SR

an invaluable asset to our team,” Doyle said.

Vanguard Investments Australia has named John James as its new managing director.

James is an Australian who has worked at Vanguard’s US headquarters in Pennsylvania since 2008. He headed the distribution division for the firm’s financial advice services group and recently began developing a new global line of business focused on financial advisers and other intermediaries, with a particular emphasis on exchange-traded funds.

Jeremy Duffield has been acting as managing director since November last year.

The group said Duffield would now resume his role as chairman of Vanguard Australia and managing director of Vanguard International Planning and Development.

James’ previous Australian financial services experience includes being general manager of corporate distribution with MLC, with responsibility for the wealth management arm of National Australia Bank’s business bank, as well as being a senior executive at Rothschild Australia Asset Management. SR APRIL 2010

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THE OTHER SIDE OF SUPERANNUATION

Back to his roots AS a former colleague, Rollover offers his congratulations to Gerard Noonan on his elevation to the chair of the

Australian Institute of Superannuation Trustees.

Noonan and Rollover both hacked away at the Australian Financial Review in the early 1980s and while Rollover is still hacking, Noonan is these days deeply involved in superannuation as the chair of Media Super and now the AIST. And if anyone should have an intimate knowledge of the

Making a splash IT would not have been the Conference of Major Superannuation Funds without the CMSF charity golf day, this year held at the North Lakes course on the northern outskirts of Brisbane.

As is usually the case, the organisers of the CMSF golf day offered a range of prizes, from ‘best score’ to ‘longest drive’ and ‘nearest the pin’.

However, reflecting the superannuation industry’s embrace of environmental sustainability, they also offered prizes to those players putting most balls in the water and the trees.

Rollover found himself playing with a couple of chaps

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from Legg Mason, and while he was deeply impressed with the ability of Phil Hart to unerringly hit his ball straight up the fairway, one of Phil’s visiting US colleagues proved to be a little less accurate.

So frequently did the man from Legg Mason find water off the tee, that Rollover enquired whether he came from a family of water diviners.

With somewhere around seven or eight balls at the bottom of ponds, lakes and streams, the man seemed a certainty to win the CMSF water conservation prize.

Alas, it was not to be. Someone who managed to find the water 14 times won the prize. SR

antecedents of the current Australian superannuation regime it should be Noonan who, as a Melbourne-based industrial relations writer, covered the emergence of the Prices and Incomes Accord between the Hawke Labor Government and the Australian Council of Trade Unions. That Accord, of course, gave birth to the superannuation guarantee.

The superannuation guarantee has been such a success that it has given rise to many fathers, but Rollover can say with certainty that both he and Noonan were witnesses to its birth. SR

Stretching credibility ROLLOVER now has proof that both good and bad can come from a global financial crisis (GFC).

That proof came in the form of an announcement in late March that the recessionary environment created by the GFC had hastened as much as 10 years’ worth of change in the legal profession as solicitors, barristers and silks strive to remain competitive.

According to the research, commissioned by an international law firm, the GFC caused lawyers to focus on efficiency, what their clients want and the delivery of value for the fees they charge.

This is all revolutionary stuff and Rollover might have been persuaded to alter his generally negative view of lawyers and the legal profession were it not for the suggestion in the report that the client now held the

power in “the legal supply relationship”.

It seems to Rollover that the mere suggestion that a client may be able to control what their lawyer ultimately charges is stretching the legal definition of the word ‘credible’.

Rollover prefers to think of lawyers as being a species not dissimilar to cockroaches – highly adaptable and capable of surviving a nuclear holocaust. SR

Flying the flag AFTER attending the 2010 Conference of Major Superannuation Funds (CMSF), Rollover found himself back at Super Review headquarters teaching his (very) young colleagues a few verses of The Red Flag.

His young friends seemed somewhat unmoved as he chorused: “Then raise the scarlet standard high!

“Beneath its folds we’ll live and die.

“Though cowards flinch and traitors sneer.

“We’ll keep the red flag flying here.”

Rollover also gave a rendition of a somewhat less enlightened version of the socialist anthem involving obtaining the foreman’s job at last, but he digresses.

So what prompted Rollover’s flashback, you ask?

Simple! The CMSF opening address given by the Australian Workers’ Union national secretary, Paul Howes – a man whose references to “shysters” and other assorted enemies of the working classes was a reminder of times past.

Rollover assumes that the feet shuffling he heard during Howes’ address was the sound of assorted fund managers feeling uncomfortable. SR

Got a funny story? about people in the superannuation industry?

Send it to Super Review and you could be raising a glass or two.

Super Review is giving away a bottle of bubbly for the funniest story published in our next issue.

Email editor@superreview.com.au or send a fax to (02) 9422 2822.