Vertically-integrated industry funds may challenge banks

Industry funds are becoming increasingly vertically integrated and over time will challenge the incumbent vertically integrated financial institutions, according to a poll taken at this week's Financial Services Council (FSC) Leaders Summit in Melbourne.

More than 80 per cent of delegates who participated in the poll agreed about the rapid evolution of vertically integrated superannuation fund structures in Australia, with a panel of senior industry executives suggesting that, increasingly, superannuation funds were representing a more natural home for financial planning businesses than the banks.

Sunsuper chief executive, Scott Hartley, pointed to increasing indicators that the banks were looking to divest their wealth management businesses in circumstances where the return on investment was no longer as strong as it had been in the 1990s.

Former investment banker and current chairman of UniSuper, Chris Cuffe, said that in terms of the cost of capital, industry funds were simply better placed than banking organisations to invest in wealth management.

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"Industry funds have lower capital requirements and fewer conflicts," he said.

Hartley said that while Sunsuper had opted out of an in-house financial planning business, he nonetheless regarded such strategies as being a fine idea for superannuation funds.

However Perpetual chief executive and current FSC chairman, Geoff Lloyd, injected a note of caution about the objective independence of financial planners employed by superannuation funds.

He said planners working for industry funds could not be regarded as independent until they were seen to be recommending products other than those provided by the funds for which they worked.