Two things occurred in February that served to underline one of the key, underlying debates affecting the Australian superannuation industry.
The first occurrence was that AMP Financial Planning (AMPFP) revealed that the number of its clients affected by its enforceable undertaking is five times greater than originally thought.
The second occurrence was yet another announcement by the Industry Super Network that research compiled by SuperRatings had revealed that industry superannuation funds represented much better value than retail master trusts.
What do these two things tell us? That not much has changed in terms of the central superannuation debate since the middle of last year.
But first to the problems confronting AMPFP. The bottom line is that superannuation switching and the manner in which financial planners are handling it remains a real problem for the advice industry.
Indeed, anyone who closely monitored the events surrounding the enforceable undertaking entered into by AMPFP with the Australian Securities and Investments Commission (ASIC) will have long since concluded that it has represented a public relations nightmare for the company and one that has been prolonged by the admission that five times as many clients then initially thought might have been affected.
But it should always have been obvious to the financial services industry that Australia’s choice of superannuation fund regime was never going to provide the financial bonanza that some people might have originally hoped.
Those people who were involved in the consultation processes that surrounded the regulatory approach to superannuation switching must have realised that those providing financial advice would have to ensure they were incredibly well informed. They must have realised that they needed to not only understand the minutiae of their clients’ existing superannuation fund but that of the destination fund.
With 20/20 hindsight, it is easy to see why some financial planners actually decline to give advice to clients about superannuation funds, particularly if those clients are members of relatively obscure funds and have low super balances.
What is certain is the problems that have been encountered by AMPFP have given such planners more reason to avoid getting involved in super switching.
Which brings us to industry superannuation funds and the reality that a deep divide continues to exist between the financial planning industry and some of those running industry funds.
When Industry Super Network spokesman Garry Weaven in late February released the results of the SuperRatings research he claimed Australians could be almost 25 per cent better off in an industry fund, even if there was no investment outperformance over a 40-year working life.
He went on to suggest that the advantage of industry superannuation funds over retail master trusts was that commissions were not paid to financial planners.
Putting aside the ongoing arguments between industry funds and the Investment and Financial Services Association over the validity of Weaven’s claims and the appropriateness of the SuperRatings methodology, the question that arises is whether the superannuation industry ought to acknowledge that financial advice has value.
Because if financial advice does have value, then the message being amplified by the Industry Super Network must certainly be undermining consumer perceptions of that value.
Recent surveying undertaken by Super Review suggests that it is not the value of advice that is at issue in the superannuation industry but, rather, the manner in which consumers pay for that advice.
If that is the case, then, there is a need for the industry funds to be far more specific about where they stand on the question of advice, particularly in circumstances where many of them have established their own advisory arrangements.
The reality which needs to be confronted by both the industry funds and companies such as AMPFP is that the interests of consumers is not being served by the mixed messages that are being fed into the market.
Just as it is unhealthy for financial planners to direct clients only towards superannuation funds which pay commissions, it is equally unhealthy for superannuation funds to suggest that the advice of all financial advisers is compromised or invalid simply because they may be paid on a commission basis.
In circumstances where the debates of 2005 and 2006 look likely to be the debates of 2007, it is time for the industry to settle its differences and move to ensure that consumers and superannuation fund members get the best possible deal.
