Restoring a very battered consumer confidence

Delivering a modern, efficient and accountable financial services industry has required courage. It is a responsibility the Financial Services Council (FSC) and its members takes very seriously.  

Our industry has been put under unprecedented public and political scrutiny in recent times. For many in our industry it must feel like we are taking two steps back for each step forward.

The Financial Services Council, as the industry association for superannuation, funds management; life insurance; public and private trustees; and financial advice dealer groups, has sought to take a leadership role to ensure the financial services industry is sustainable for the long-term. This is why the FSC has taken difficult decisions and sought to push ahead with reform.

Some of this reform is via our enforceable standards, unique in financial services peak bodies. Our standards are cited as one of the most valued aspects of FSC membership.

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The FSC-initiated Trowbridge Review of Retail Life Insurance is the gold standard of industry self-review and regulation.

Deep disagreement within the industry around the sustainability of past practices and remuneration structures required an independent review.

Some of the Trowbridge recommendations were difficult for the industry to accept, but this shows the integrity of the process and the independence of John Trowbridge himself.

The FSC’s implementation of the Trowbridge recommendations has established Australia’s first Life Insurance Code of Practice. It also formed the basis for the recent legislative reform of commissions in the financial advice industry, which had bi-partisan political support and the backing of consumer groups.

Having achieved broad-based support on financial services reforms is almost unbelievable in the current polarised political environment and amid ongoing calls for a Royal Commission into the financial services industry.

The genuine nature of change within the sectors the FSC represents is reflected in the fact that most examples of misconduct that come to light still overwhelmingly pre-date the recent suite of reforms in the financial advice, superannuation and life insurance industries.

“Regulators and the parliament should take a keen interest when an industry advocate dismisses public concerns as this only serves to undermine the genuine efforts by associations, such as the FSC, to implement genuine reforms to make the system more accountable to consumers.”

Consumer confidence in financial services, however, can be eroded more quickly than it is strengthened.

This is why recent debate around the Fraser Review of the governance practices in the industry superannuation sector has been cause for dismay.

Bernie Fraser is a man of the greatest integrity. As a former RBA Governor, Secretary of the Treasury, and poster boy for Industry Super Australia (ISA) he rightly deserved the trust and respect of the Senators who backed him to conduct a review of industry fund governance in 2015.

Promises to politicians and consumers, however, must be followed up with action. The significant delay in generating the report on industry fund governance, which was promised by April 2016, but then not produced until February 2017, rang alarm bells.

For the final report to single-mindedly reinforce the status quo – which is the long standing policy position of the lobby groups ISA and the Australian Institute of Superannuation Trustees (AIST) who commissioned the review – defies credibility and once again contributes to erode public confidence that superannuation is serving consumers.

Senator Xenophon, who lent his name to the review when it was commissioned in 2015, provided a timely warning in the weeks before the report’s eventual release: He voiced concern that the delay was “getting beyond what was reasonable.”

Later the Senator quipped that “presumably, given the time it’s taken, it will be a rolled gold report”.

If the final report is gold of any type, it is surely fool’s gold.

Unfortunately taking a cynical approach to self-regulation does damage to the industry as a whole, not just the industry fund sector on whose behalf Fraser is advocating.

Public concern that the superannuation industry – both retail and industry – at times serves sectional interests rather than those of consumer tarnishes the reputation of all funds. Turning a blind eye to misconduct does nothing to restore consumer confidence.

Regulators and the parliament should take a keen interest when an industry advocate dismisses public concerns as this only serves to undermine the genuine efforts by associations, such as the FSC, to implement genuine reforms to make the system more accountable to consumers.

The industry should expect that where it fails to self-regulate in a way that meets community expectations, a Government and parliament, of any persuasion, would rightly step in with legislation to ensure consumers are always put first.  

Blake Briggs is senior policy manager for superannuation at the Financial Services Council.