Paul Tynan

The current environment could not be better for Australian entrepreneurs and business people – especially those in the financial services sector to seize the moment and capitalise on the commercial and investment opportunities that are rapidly emerging within the economies of Asia said Connect Financial Service Brokers (Connect) CEO Paul Tynan.

Commenting further, Paul Tynan said there has been lots of talk recently about promoting and marketing Australia’s immense financial services expertise that will be required by the emerging Asian middle class which is expected to reach 1.75 billion by 2020.

“These conversations have been accelerated by the Federal government’s desire to enter into free trade agreements with a number of our close Asian neighbours.  The work being done to establish Asia as the largest free trading block of nations representing 40% of global trade has rightly been described as an economic game changer”.

The recent Financial Services Council conference was keen to promote Australia’s funds management capabilities throughout Asia by championing the Asian Regional Passport and asking for government to drive the opportunities.

Paul Tynan continued, “But these opportunities cannot be driven by governments alone – businesses must seize this moment in history and capitalise on their entrepreneurial spirit to develop these opportunities”.

“The conservativeness of Australia’s large financial institutions (banks) is a two edged sword as they are very risk averse and cautious as they stringently safeguard the wealth accumulation and retirement nest eggs of the nation’s investors and working population”.

Unfortunately, this conventional and guarded approach is reflected in a lack the entrepreneurial flair to develop the commercial potential overseas.  A further consequence is the lack of capital afforded to SMEs wishing to exploit these off shore opportunities.  This is understandable as big businesses do not have a great track record in foreign markets (AMP, NAB).

Australia as a nation needs to act now and respond to the challenge about how we can live, engage and develop within the Asian century.

Paul Tynan went to say that the government needs to consider better promotion of its financial incentives for exporter ready businesses and use of expat experience as a vehicle to encourage smaller private companies to show the larger institutions the way.

“The fund management industry in Australia has been driven by compulsory superannuation and regulatory change over the past 25 years.  Today distribution is controlled by product design, platforms, research, industry funds and vertical integration of advice”.

“To win in the Asia market the Australian fund management industry will need more than product design, returns and the lowest cost if they are to succeed”.

Business will need to dust off the business cards and focus on developing contacts, networking skills and nurture relationships with local Asian business partners as this is very different to the current marketing to source the superannuation dollar in the Australian market.

Australia is facing an unprecedented challenge, the growth of multinationals from the emerging markets and governments are enhancing the global coordination of these free market blocks.

Australian financial service businesses and individuals must embrace the potential prospects of doing business overseas and use the right ‘connecting skills’ in order to develop the opportunity.

Paul Tynan concluded, “There is no doubt the Asian middle class will explode over the next decade and this sector will demand financial product, food, health, education, technology, entertainment to satisfy their new found wealth”.

“However, doing business in Asia will take time and a long term commitment, but if the Australian funds management industry takes their short term performance culture to Asia they will fail.  To develop these markets business large and small need to start their  engagement activities now and proactively support government initiatives, embrace expats, knowledge/networks and most importantly, apply the ‘old world skills’of relationship management”.

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Andrew Bragg

The first report on MySuper performance and fees released by APRA yesterday is a game changer for the way superannuation is reported, the Financial Services Council said.

Andrew Bragg, FSC Director of Policy said: “For the first time, Australians have APRA data which directly compares the fees and performance of MySuper products.”

“As of yesterday, APRA is showing true ‘apple with apple’ comparisons.”

“APRA data shows FSC members’ funds have outperformed industry funds since MySuper started in January 2014.”

FSC members’ funds averaged net returns of 3.4  per cent compared to industry funds at 3.18 per cent since the commencement of MySuper.

“This is evidence that MySuper is delivering both transparent, comparable information and lower fees,” Mr Bragg said.

“This is good news for 70% of working Australians who do not choose a superannuation fund.”

Mr Bragg said:  “Fees can be further reduced if the industry fund-dominated default superannuation market is opened up to competition.”

“MySuper has been a game changer for the default superannuation market.”

“Industry funds are now more expensive and offer lower returns than FSC member funds, but maintain a monopoly on default contributions through the Fair Work Commission process.

“While the FWC process continues, millions of Australians will be missing out on the benefit of lower fees and higher return MySuper products offered by FSC members ,” he said.

“Superannuation is a long term investment. This is why fees and performance are important.”

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Mark Rantall

The Financial Planning Association of Australia (FPA) yesterday rejected the Financial Services Council’s (FSC) call for a new statutory advice board to oversee the Australian financial advice industry, labelling it ‘another band-aid solution’.

The FSC yesterday called for the establishment of a new Board to control education and professional standards in the financial planning and advice profession. It has suggested its members fund this Board. The FPA views this proposal as:

1. Potentially embedding inherent conflicts, rather than eliminating them, given the proposed body is industry funded
2. Asking Government to do the industry’s job of setting appropriate professional and educational standards (rather than establishing a regulatory framework and minimum standards and enforcing them.

Mark Rantall, CEO of the FPA said: “We see the FSC proposal as a band-aid solution that masks underlying, systemic issues. We don’t need a new Board to oversee the Australian financial advice industry. What we do need is long-term, effective change that is transparent.”

According to Mr Rantall, this call shifts the responsibility of regulation onto government and away from much-needed internal reform. “This model gives up on self-regulation, but creates more red tape. Removing the self-responsibility of advice businesses to do their best by consumers is not a solution. “The financial planning issues we face as a nation require long-term, systemic change.

This industry reform effort will require significant work on the part of individual planners and the organisations that lead and manage them. It isn’t a job for government. “We believe the role of Government and regulators’ is to set minimums standards and enforce them legally – it is not to do the industry’s job by defining what professionalism in advice looks like.”

The FPA has consistently called for significant industry change, campaigning for key measures such as:

1. Unambiguous separation of product sales from professional personal advice. This means regulations must call product sales what they are i.e. “product sales” rather than General Advice (as per previous representations on the Future of Financial Advice reforms)
2. Lifting educational standards so every new financial planner has a degree, as well as relevant post graduate qualifications and experience. An adequate standard is the internationally recognised CERTIFIED FINANCIAL PLANNER® (CFP) designation. This is the globally recognised “gold standard” in contrast to the current, inadequate standard of RG146 – a qualification that takes less than two weeks to achieve. Existing financial planners should have to meet any competency standard gaps at an approved degree level.
3. Enshrining the term ‘financial planner’ in law to ensure that Australian consumers can trust the financial planner they find when seeking financial advice.

“We have long called for higher education standards and strongly believe that these standards need to be set by a professional body and that there needs to be international independence around education and standards. We have that with the Financial Planning Standards Board. The FSC proposal ignores the fact that four of the five largest FSC members support the CFP® designation as the appropriate standard to aspire to. “The blueprint for trust is simple: raise the bar in terms of professional and education standards for financial planners; separate product sales from professional personal financial advice and enshrine the term ‘financial planner’ in law so Australians can identify the professionals and trust the profession. “The FPA supports planners to meet the highest possible standards, and requires that our members meet or exceed these standards to maintain their professional standing.”

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John Brogden

The Financial Services Council is advocating for the establishment of a statutory, independent, Advice Competency Standards Board (ACSB) for financial advisers to rebuild the trust of consumers in financial advice, John Brogden, CEO of the FSC said yesterday.

“The advice industry needs an external, independent governing body,” Mr Brogden said. “The best way to regain trust is to have an independent statutory body in control of education and  professional standards.”

“Self-regulation is no longer a credible option for establishing higher standards,” he said. “We have recommended to the Parliamentary Joint Committee inquiry into adviser competency and the Murray Review that an independent body be established to oversee adviser competency standards, education and professional conduct.”

“It is critical that the industry redefines itself through robust oversight and high competency standards to rebuild the trust and confidence of consumers so more Australians seek financial advice.”

“Significantly improved adviser education, increased ASIC powers and greater disclosure of experience and ownership are needed to increase public confidence in financial advice.”

The ACSB would replace current low entry points such as RG 146. The Board would comprise key industry stakeholders such as ASIC and the Tax Practitioners Board and would have industry representation determined by the Minister.

Mr Brogden also said: “The ACSB will be the point of integration for regulation which is fragmented and cuts across the Tax Agents Services Act and the Corporations Act.”

“Under this model, advisers will have robust competency and professional standards to complement their legal duties. This will end confusion and increase trust and confidence in the industry,” Mr Brogden said.

Read the FSC’s submission here to the Parliamentary Joint Committee on Corporations and Financial Services Inquiry into proposals to lift the professional, ethical and education standards in the financial services industry.

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John Brogden

The Financial Services Council has calculated that working Australians will have $128 billion less in their superannuation savings by 2025 due to the delay of 12 per cent superannuation guarantee charge for seven years.

This follows the government’s revised schedule for the SGC to enable the repeal of the Mining Resources Rent Tax.

John Brogden, CEO of the FSC said: “It is very disappointing that the government has again slowed the increase in the Superannuation Guarantee to 12 per cent.”

“We are concerned it could exacerbate the nation’s low savings rate and that costs will be passed on to future generations.

“Australia has a savings gap of $727 billion.  The delay of revised schedule would result in a widening of the gap as Australians will have $128 billion less in superannuation contributions by 2025.”

Superannuation is significantly reducing the pressure on the Federal Budget.  This year it will save the government $6 billion in Age Pension costs. If it continued to 12 per cent at the current schedule, this would be $11 billion per annum by 2030.

“Australians are living longer and need to plan for their retirement with certainty.”

“With increasing the financial pressures of an aging population, now is not the time to slow down on superannuation.”

“The changes announced will reduce the likelihood that people can retire comfortably and that the costs of an aging population will be passed on to the next generation.

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Andrew Bragg

The current structure of Australia’s insurance framework is inhibiting product innovation, creating underinsurance and unnecessary public sector cost, the Financial Services Council said yesterday.

In its phase two submission to the Financial System Inquiry, the FSC said: “Regulation must allow insurers to meet consumers’ needs.”

Andrew Bragg, Director of Policy for the FSC said: “Australia’s insurance framework is too fragmented. It requires separate licences for individual products.”

“This prevents insurers from offering multi-purpose products such as combined health and life insurance policies to meet the needs of Australian consumers.”

“We are recommending to the Murray Review that the prudential framework be streamlined so the industry can develop innovative products that better meet the needs of consumers,” Mr Bragg said.

The FSC also said private disability insurance could be leveraged to meet the ballooning costs of disability welfare in Australia and to reduce the increasing pressure on the Commonwealth Budget.

“Life insurance can be the private sector solution to the increasing budget costs of welfare, just as superannuation is to an aging population and private health insurance is to managing health care costs,” said Mr Bragg.

“Modelling by Deloitte Access Economics shows if the government treated private disability insurance in a similar way to private health insurance, $8.5 billion in net savings could be achieved.”

“The costs of the National Disability Insurance Scheme and Disability Support Pension must be sustainable and should not be monopolised by the government.”

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John Brogden

Research for the Financial Services Council released yesterday shows Australia has the third highest superannuation fund returns in the world.

The research was prepared for the FSC by Deloitte Access Economics to benchmark fees and returns to Australian superannuation funds against comparable countries.

“Of the twelve countries included in the study, Australia has the third highest returns,” John Brogden, CEO of the Financial Services Council said.

In his keynote speech to the FSC Annual Conference yesterday Mr Brogden said: “The (Murray) Inquiry has rightly asked how cheap or expensive the Australian superannuation system is when compared globally.”

New data from Chant West shows the median return since the start of compulsory superannuation 22 years ago to June 2014 was 8 per cent per annum which is 5.4 per cent above inflation. This is net of investment fees and tax and well above the typical return objective of CPI plus 3.5 per cent.

“On any measure this is definitive evidence that Australia’s superannuation system is working,” Mr Brogden said.

“The debate on fees is less definitive.”

The FSI interim report observed that there is a lack of competition and fee sensitivity in the superannuation sector and operating costs appear above international standards.

“The problem is that assumptions made to date been based on old data which has failed to compare like with like,” Mr Brogden said.

“We need to look at the cost and value of the superannuation system and the funds management industry,” Mr Brogden said.

“The returns that members receive from their superannuation funds over the long term are the most important factor. Focusing on cost alone is dangerous and lazy.”

Research conducted by Rice Warner Actuaries for the FSC shows that MySuper has had an immediate and significant impact on fees in default superannuation.

Superannuation fees have shown a steady decline over the past decade driven by greater competition.

The commencement of MySuper in July 2013 has had a dramatic impact on fees.

Between 2011 and 2013 fees in MySuper default-like products declined from 0.92 per cent to 0.73 per cent.

Given that 80 per cent of Australians default, this means the vast majority of Australians are receiving the benefit of MySuper immediately.

Mr Brogden said: “MySuper must be given time to deliver what the Cooper Review intended it to do − that is, lower costs through competition. And it needs to be given the opportunity to go further through reform of the way default superannuation funds are selected by the introduction of an open, competitive and transparent market.”

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The Financial Services Council’s annual conference is being held at the Cairns Convention Centre from 6 to 8 August. Further details can be accessed at: http://fsc.org.au/events/fsc-annual-conference-2014-accelerate/home.aspx

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Greg Cooper

Australia needs to significantly grow its financial services export industry over the next decade to ensure future employment and economic growth,  Greg Cooper, CEO of Schroder Investment Management Australia and chairman of the Financial Services Council said yesterday.

In his opening speech to the FSC’s annual conference in Cairns, Mr Cooper said: “Selling financial services to individuals or companies outside Australia is as much an export as selling iron or ore coal.”

“Financial services is no longer an industry that is seen just as a facilitator of growth in other sectors or as an industry to be regulated,” he said.

“This is recognised by the Murray Review which is the first inquiry into Australia’s financial system to consider financial services an industry that generates economic and employment growth in its own right.”

Mr Cooper also said: “Australia has the third largest pool of funds in the world at $2.3 trillion. As a result our funds management industry is large, highly developed and highly skilled.

“There is a tremendous opportunity to build upon our comparative advantage in this sector.”

“If Australia can increase its funds management exports to the same level as Hong Kong by 2023/24, the flow on effects will be significant.”

“As a result, GDP would increase by $4.2 billion by 2029-30 and around 10,000 additional jobs would be created.”

“There would also be significant flow on effects. Fees received by fund managers would lead to an increase in income and payroll tax and an increase in funds management exports would lead to a net increase in the amount of foreign assets invested in Australia,” he said.

The income generated by these assets would steadily increase tax revenue for the Australian Government.

“The Deloitte modelling shows the government would receive an additional $1.7 billion in tax revenue in 2024-25 which would stabilise to $1.2 billion in 2029-30 if Australian funds under management were increased to Hong Kong levels.”

These were some of the revelations in new research for the FSC by Deloitte Access Economics released at the FSC conference.

“The report shows around 3.5 per cent of funds under management in Australia are sourced offshore compared with 80 per cent in Singapore, and 65 per cent in Hong Kong,” Mr Cooper said.

“This is low compared to other leading financial centres.”

“It is clear from this research that a lack of coordination in international integration to increase the push to increase financial services exports has left Australia significantly lagging behind other countries.”

Mr Cooper also said: “Australia urgently requires a coordination body to be established to progress international financial integration and to promote Australian financial services in the Asia Region.”

“The City of London and the Hong Kong Financial Services Development Council provide templates which Australia can draw upon,” he said.

“The body should be resourced by government and must have power in legislation to deal with tax and regulatory issues affecting the industry.”

“And, for the body to be effective if must also have advisory representatives from industry and be housed in the Treasury portfolio,” Mr Cooper Said.

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The Financial Services Council’s annual conference is being held at the Cairns Convention Centre from 6 to 8 August. Further details can be accessed at: http://fsc.org.au/events/fsc-annual-conference-2014-accelerate/home.aspx

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The report found that 73% of financial services CEOs believe technology is a key enabler to deliver innovation in financial services and 62% believe technology plays a major role in strategic planning. Top innovation projects identified by CEOs include developing new ways of servicing customers, developing new products and developing new internal back-office processes.

Martin Spedding, CEO, DST Bluedoor said, “The changing operational environment and client demands in financial services are driving firms to innovate and implement technology to develop new products and improve customer service.

“Technology innovations such as implementing mobile applications or web portals and improving internal and back-office processes are essential to better communicate with customers and help firms to maintain or lift market share,” Mr Spedding said.

However, despite technology playing a major role in developing innovation within the financial services sector, over half (55%) of Australian CEOs are spending IT budgets on Business As Usual (BUA) projects as they struggle to comply with regulatory changes.

The survey found that over 50% of those interviewed were spending less than 25% of their IT budgets on innovation projects, 31% were spending between 26-50%, and as few as 14% were devoting over 50% to innovation-focused activity.

While many CEOs said they wish they had more resources to direct to innovation projects, nearly three quarters (73%) believe their technology spend represented value for money, and over half thought their IT spend was about right.

“The continuing need for financial services firms to address regulatory requirements is leaving Australian businesses in a difficult position,” Mr Spedding said. “Many CEOs wish they had more resources to direct to innovative projects to ensure future growth and market efficiencies, but ongoing regulatory changes are absorbing crucial IT spend.”

Looking ahead, the survey revealed 75% of CEOs believe the use of client data will improve products, increase customer service and contribute to strategic thinking.

John Brodgen, CEO of the Financial Services Council said: “Consumers are driving new developments in technology which will play an important role in the future of financial services. Technology will be critical for delivering new products and processes and in helping businesses better understand customer behaviours and goals.

“The challenge for financial services will be to keep abreast of customer needs,” Mr Brogden said.

About the Survey

The Financial Services Council conducts an annual survey of its member CEOs on the key issues affecting their businesses, the financial services sector more broadly, and the Australian economy. This year’s survey focused on the place and importance of innovation in meeting Australia’s changing regulatory environment.

This year, 50 of the FSC’s 73 member CEOs participated in the 2014 FSC-DST CEO Survey that captured their views on innovation within the financial services industry and the role the sector plays in supporting innovation. These views are collected via a member survey, a series of roundtables and, one-on-one interviews. The 2014 survey was undertaken in conjunction with DST.

Click here to read the full report.

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John Brogden

The selection process by the Fair Work Commission (FWC) for default superannuation funds under Modern Awards will cost superannuation fund members a staggering $400 million if it is allowed to proceed.

Laws put in place by the previous Federal Government require the FWC to assess all MySuper products that apply to receive default contributions and then replace every single fund in every Modern Award.  As early as 1 January 2015, each Modern Award must have from two to 15 default MySuper products.

New research by Rafe Consulting for the Financial Services Council shows the superannuation arrangements of at least 2.25 million working Australians and 100,000 employers will be thrown into turmoil if the Fair Work Commission is allowed to complete its review of default superannuation terms in awards.

It is the first research to analyse the systemic risks that superannuation members and employers face if the FWC process is not reformed.

Rafe estimates this will cost consumers and employers a massive $400 million due to duplication of fees, insurance premiums and employer search costs.

He says within two years fund members would be $150 out of pocket due to the cost of duplication of fees and premiums. Additional costs which will have no benefits for consumers. Costs which undermine years of reform aimed at stripping unnecessary expense from superannuation.

John Brogden, CEO of the FSC said: “The default superannuation system needs to be reformed as a matter of urgency.”

“The consequences of not making reform are far-reaching,” he said.

“These unnecessary costs to employers and employees may be incurred as early as 1 January 2015 unless the Government acts to reform the process before the FWC review is completed.”

The Financial System Inquiry interim report released last week made a point of commenting on this issue. It observed that “the selection of default funds in awards largely reflects precedent and is not subject to a competitive process.”

In the broader context, the Murray Review focused on driving costs lower to increase the adequacy of Australia’s retirement savings.

Chant West data released this week demonstrates that FSC members have outperformed industry funds over the last three and  five years. Opening up the default market to competition will enable more Australians to enjoy the benefits of their outperformance, forcing industry funds to lift their game.

“Superannuation funds that offer competitive products and provide good service to their members have nothing to fear from competition.

Mr Brogden also said: “The closed shop of default superannuation is a risk not just for individuals who will have lower savings in retirement as a result of less competition, but for the Government which will ultimately bare the cost of lower fund balances in retirement through paying more in Age Pensions.”

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