Industry Super Network

Rice Warner predicts super industry to grow to $3.3 trillion by 2026

New research by Rice Warner Actuaries outlines the key challenges for the superannuation industry over the next decade, including a shift to post-retirement assets.

According to new data by Rice Warner Actuaries, superannuation assets are set to grow to around $3.3 trillion by 2026, while the number of super funds in Australia will drop by 48 per cent in the next five years.*

Commenting on the figures, Michael Rice, Managing Director of Rice Warner, said, “The industry faces an unprecedented number of challenges over the next few years. Funds need to position themselves to be able to address these successfully while still focusing on delivering the best retirement outcomes possible to members – hence our prediction that the number of funds will continue to reduce substantially.”

One trend that has had a major impact on the superannuation industry in recent years is the growth of self-managed super funds (SMSF). Rice Warner predicts that the flow of assets to the SMSF segment will continue, largely driven by advisers and accountants, with total market share by assets to remain stable at around 30 per cent of the market.

Rice Warner also expects that with the baby boomer generation retiring, post retirement assets will increase to 42 per cent of all superannuation assets by 2026, compared to 30 per cent at 30 June 2011. Industry fund market share of post-retirement assets is predicted to triple from 5.1 per cent at 30 June 2011 to 16.5 per cent by 2026.

Alun Stevens, Principal of Rice Warner, said, “The market has reached a turning point against the backdrop of unparalleled legislative changes, market turmoil and the shift to SMSFs. Simultaneously, there is an accelerating movement of members and assets into the post retirement phase. In response, we expect significant product development and realignment of servicing models.”

For more information, visit www.ricewarner.com.au

*Includes Corporate, Industry Fund, Public Sector and Commercial Funds.

Prime Minister launches LUCRF Community Partnership Trust in New South Wales

The LUCRF Community Partnership Trust is helping support disadvantaged Australians while putting employers in touch with their local communities.

On 2 December 2011, Prime Minister, The Hon. Julia Gillard MP launched the LUCRF Community Partnership Trust in New South Wales.

Established by LUCRF Super in November 2010, the initiative identifies and supports worthy causes which reflect the fund’s core values and aims to build skills, capacity and knowledge within communities. With the support of various contributing employers, the Trust forms a partnership with organisations that provide much needed help to disadvantaged children and young adult Australians. The initiative aims to deliver long term solutions to issues in communities where members reside and serves as a reliable resource for other employers to use when considering community engagement.

The Prime Minister commented, “I’m pleased and proud that this fund has always placed a high priority on giving something back to the community.”

CEO of LUCRF Super, Greg Sword, said, “Through the Community Partnership Trust, the fund can further develop positive and sustainable relationships that extend beyond a transactional nature.

“We hope to make a real difference in people’s lives and inspire others to do similar things as there are so many people in the community that need assistance.”

In 2010, the Trust partnered with Doxa Youth Foundation (www.doxa.org.au), Youth Projects (www.youthprojects.org.au) and the St Vincent’s Sisters of Charity (www.svhm.org.au), resulting in a number of important initiatives that are improving the lives of disadvantaged Australians.

At the 2011 launch, the inaugural Community Partners in New South Waleswere announced by the Prime Minister as Foundation House (www.foundationhouse.net.au) and the Cawarra Women’s Refuge Aboriginal Corporation.

Foundation House

Foundation House is an alcohol, drug and gambling treatment facility run by the Construction Drug and Alcohol Foundation (CIDAF). It provides residential and outpatient services to a broad range of patients, including construction industry personnel, members of their families and the general public.

The facility was opened in June 2000 and aims to directly address the lack of availability of treatment options and unrealistic waiting lists in an already overcrowded public health system with limited places.

The LUCRF Community Partnership Trust has provided support for the full time employment of a Gambling Counsellor to further extend the current Alcohol and Drug Rehabilitation program. The Trust’s support will enable the Counsellor to drive a four-week intensive outpatient gambling program and offer an after-hours service to those who cannot attend the program.

Cawarra Women’s Refuge Aboriginal Corporation

Cawarra Women’s Refuge Aboriginal Corporation is a unique facility that was formed over 30 years ago to provide support for Aboriginal and Torres Strait Islander women and children who are escaping or experiencing domestic violence.

Cawarra provides culturally safe, confidential accommodation and assistance programs that are designed to empower clients and help them get back to living a safe and normal life.

The LUCRF Community Partnership Trust has provided Cawarra with the support to recruit an additional Aboriginal Family Support Worker and part-time visiting psychologist, to continue its current Family and Child Health Worker program. The Trust’s support will significantly help Cawarra in its capacity to deliver a broad range of support services to those who are most vulnerable. This includes adequate crisis care, case management services, disability services, pregnancy support and specialist counselling services.

Employers can partner with the LUCRF Community Partnership Trust through a Workplace Giving Program or by making a one-off donation to the Trust.

For more information, call 1300 130 780 or visit www.lucrfcpt.org.au

L-R: Contributing employer Kerry Smith with John Cain, Peter Lawrence, Greg Sword, Sister Leonne, Charlie Donnelly and John Lenders

ME Bank launches Household Financial Health Dynamics Report

ME Bank is putting its finger on the national economic pulse with a new index that measures the financial health of Australian households.

In late 2011, ME Bank launched its Household Financial Health Dynamics Report. A comprehensive survey of more than 1,500 Australian households, the report focused on:

• the way Australian households feel about their financial comfort
• the actual financial state of Australian households
• the relationship between the two.

ME Bank CEO, Jamie McPhee, said that the report provided a range of important findings that would be both interesting and useful to track over time.

“Unlike other financial indexes, ME Bank wanted to use this research to really focus in on the average Australian household.

“We wanted to find out how comfortable households are feeling about their finances and whether that feeling tallied with their actual financial state.

“This research will provide important insights for policy makers, governments and society in general,” he said.

The inaugural report found that:

• the single factor most closely aligned to household financial comfort is not income, but rather superannuation holdings
• two-thirds of Australians are financial realists, with their comfort level and actual financial situation aligning
• one in seven Australians feel overly comfortable given their actual financial state.

The report also found that Australian households are feeling reasonably comfortable with their finances overall, however single parent households are the least comfortable and retirees are the most comfortable.

To obtain a copy of the full report, click here. For a summary of key findings and graphics, click here.

AustralianSuper and AGEST announce intention to merge

Following its successful merger with Westscheme in 2011, AustralianSuper is set to expand even further by joining forces with AGEST in 2012.

In December 2011, AGEST announced AustralianSuper as its preferred merger partner, following an extensive tender process. AustralianSuper currently has 1.8 million members and over $42 billion in funds under management. AGEST has approximately 130,000 members, predominantly current and former Commonwealth and Territory public sector employees, and manages around $4.3 billion in funds.

AGEST CEO, Ms Cath Bowtell, said that AGEST’s decision to seek a merger partner arose from the Board’s view that members’ interests are best served by being in a large fund that is growing strongly.

“AustralianSuper was selected as the best fit for AGEST because of its consistent investment performance, commitment to low fees, wide variety of investment options, extensive range of ancillary services and strong national presence,” said Ms Bowtell. “AustralianSuper’s extensive merger experience was also a factor.”

AustralianSuper Chief Executive, Ian Silk, said, “We are delighted that AGEST has chosen AustralianSuper as their preferred merger partner. Above all else, the merger is about providing greater benefits for members and maximising their retirement savings.

“AGEST members will benefit from being part of a fund that can deliver the products, services and help that is necessary to achieve the best possible retirement outcomes now and into the future. In addition, there is a strong alignment of values, culture and focus on better outcomes and advocacy for members.”

In 2012, AGEST and AustralianSuper will undertake due diligence on each other. A full cost benefit analysis and an integration plan will also be part of the next stage.

AGEST has made a submission to the Government requesting CGT rollover relief and will continue to seek to preserve its deferred tax asset in the proposed merger.

This was the second major merger announcement for AustralianSuper in 2011, with Westscheme merging into the fund last June.

Mr Silk said, “We aim to keep growing as scale enables us to deliver the best prospects for secure retirement to the greatest possible number of Australian workers.”

For more information, visit AustralianSuper at www.australiansuper.com.au or AGEST at www.agest.com.au

The Future of Financial Advice reforms rest on the best interests obligation

Robbie Campo, Manager – Strategy, ISN, asks whether it is really possible for any financial institution to argue against the introduction of a best interests test for financial advisers. 

The best interests duty is considered by many to be the cornerstone of the Government’s Future of Financial Advice (FoFA) reforms introduced into Parliament last week. It is a long overdue measure that will assist the industry in transitioning to a credible and trustworthy profession.  But while there is a high degree of agreement that the Government has presented to Parliament a balanced yet effective best interests duty, banks and large insurers are largely unhappy.

The Financial Services Council (FSC), which represents banks and insurance companies, contends that the duty is unworkable. As banks and insurance companies are major employers of financial advisers (around 85 per cent of financial planners are employed by product providers) and have traditionally used planners as their primary distribution channel, it is no surprise that they are objecting.

The best interests obligation, which will require a client’s interests to be given priority over all other interests, will impact on the sales function that banks and retail funds have traditionally assigned to planners. Yet if the best interests obligation and other FoFA reforms fail to free financial planners from being sales agents, then we will have failed one of the key policy objectives of this reform process.

The FSC, on behalf of major banks and insurers which run retail super funds, has raised concerns that the best interests duty is unworkable because it is not completely defined by a step-by-step process. However, an effective best interests test cannot be condensed to a finite number of steps. It requires astute and professional judgement based on an adviser’s knowledge and experience, rather than just imposing a ‘tick-a-box’ approach.

Initially, stakeholders were divided as to how the obligation should be defined. Some stakeholders, including the Financial Planning Association, sought a principles-based approach, while others argued for a tight set of regulations. In the end, the Government struck a compromise between the two and provided a significant level of prescription by identifying a number of ‘reasonable steps’ an adviser could follow to prove that they have acted in their client’s best interests. This approach, however, does not exclude the need for an adviser to exercise some professional judgement.

The FSC is also arguing that the Bill fails to provide the requisite certainty to enable planners to offer basic advice on a single or limited subject matter. Interestingly, industry super funds, who are currently the major providers of single issue financial advice, do not share this concern.

The Bill and the Explanatory Memorandum make very clear that a planner can scope advice to a single subject matter, provided this is done in the client’s interests. However, this has not gone far enough to appease the big banks and insurance companies. So what modifications to the duty do they seek?

The FSC’s submission to Treasury on the draft legislation argued that a client and adviser should be able to “agree” on the scope of the advice, to give the provider certainty regarding the extent of their liability. However, typical Australians are vastly less knowledgeable and experienced in financial matters than their planner and often do not provide clear instructions. Is it to be seriously contended that the capacity for ‘contracting out’ should be built into the best interests obligation, given the gap in financial knowledge that exists between most clients and their financial planner?

Properly identifying the scope of advice in the client’s interests is fundamental to any professional obligation – for instance, a doctor does not always just look at the immediate symptoms of which a patient complains. A doctor will often question a patient to consider whether further investigation/tests are warranted. However, a doctor would not contemplate getting a patient to ‘agree’ to the scope of the diagnosis or treatment. In any normal professional engagement, it is incumbent on the professional to direct or advise their client, not the other way around.

The Government has delivered a best interests duty that offers some compromise between the choice of a principles-based obligation or a qualified set of steps which enables a planner to demonstrate compliance with the duty. 

The Government has undertaken over a year’s intensive consultation in an effort to address all legitimate issues raised by industry stakeholders. The current form of the duty sets a professional standard for financial advice, which is why it is supported by a number of key stakeholders including Choice and the Financial Planning Association.

Any further compromise would simply return financial advice to sales.

For further information on the FoFA reforms, contact Robbie Campo on rcampo@industrysuper.com