Look who's playing Henny Penny card
Sydney Morning Herald
Saturday February 26, 2011
I BLAME the miners. Having proved how easily financial muscle, self-interest and sheer propaganda can overturn government policy (and come close to overturning government), you can't blame other interest groups for thinking government policy is only for real if those affected are too lily-livered to do anything about it.But while it's one thing to feel genuinely hard done by, it's quite another to wilfully disregard how good you have it in the expectation that if you cry foul often and loud enough, you'll do even better.Unfortunately, that's exactly what sections of the finance industry are doing in their efforts to water down the government's financial advice and super reforms.These reforms were based around a simple proposition. In exchange for supercharging the industry's rivers of gold by increasing compulsory super contributions from 9 per cent to 12 per cent, the government wanted super funds and financial planners to become more transparent, efficient and accountable to the investors whose savings fund their healthy profits.It seemed like a fair trade and certainly the initial industry response was positive. But now some sections of the industry are arguing they should have their cake and eat it, too.They want to keep the good bits - such as that guaranteed growth in income - but get rid of the bits that may prove embarrassing, inconvenient or - heaven forbid - put a limit on profit growth.And just like the miners, their claims are developing a distinct Henny Penny feel.Apparently, if the government has its way, the deluge of dangers we're facing includes everything from small businesses going broke to ordinary Australians being unable to afford advice at all, or even essentials such as life insurance.But let's take a bit of perspective.With financial advice, the shortcomings of a system whereby advisers are rewarded through commissions and other kickbacks for recommending particular products have long been obvious. Even the industry eventually recognised this and set in place its own plans to eliminate commissions. While some advisers say commissions should still be allowed, this is a dead argument.But commissions are not the only kickbacks used to cement the cosy relationship between product providers and planners.The influential Financial Services Council, which represents the big retail fund managers, has been lobbying to retain so-called volume-based payments - which the newly created Australian Financial Integrity Network has described as "particularly odious" because they're big, complex and almost impossible to disclose.AusFIN reckons volume-based payments are worth $2 billion to $3 billion annually and it's not hard to see why both sides would want to retain them in some form.While commissions are paid to any adviser who sells your product, volume-based payments are made to the advisers who sell lots of product. They are a way of rewarding the more lucrative members of your sales force.Volume-based payments are also widely used by providers of administrative platforms such as wrap accounts, through which clients' money is invested in a range of underlying investment products. The industry likes to argue that platforms are somehow "neutral" because they're the middle man in the transaction, not the final beneficiary, and so should be exempt from the proposed ban on volume-based payments.But these middle men take a slice of every dollar invested through them and have a huge vested interest in encouraging advisers to direct as much money their way as possible. It is nonsense to suggest their kickbacks are somehow different.The Financial Services Council and the Association of Financial Advisers have also been lobbying against the proposed "opt-in" requirement whereby agreements between advisers and their clients would need to be renewed annually, rather than continuing indefinitely.Costs, the added administrative burden and the potential for clients to fall through the gaps and be left without advice when they need it have all been cited as reasons to dump the idea. The AFA says the measure would price lower- and middle-income earners out of the advice market, while the FSC says it will reduce consumer protection and encourage short-termism.But as AusFIN points out, while annual renewals might be foreign to the advice industry, any number of other industries manage to operate effectively with them.A report by actuaries Rice Warner for the industry funds found the costs would be much smaller than the critics have indicated.And as any half-decent adviser offers clients a review at least once a year anyway, it is hard to see why the renewal couldn't simply be dealt with as part of this process. What is so difficult about sitting down once a year with clients and nutting out what you'll be doing for them and what they will pay for it?As we move down the reform road, the claims are becoming increasingly strident and opportunistic. The AFA's recent attempt to link debate about adviser remuneration with this summer's natural disasters (apparently the debate clouded the "real issues", such as people not having enough life insurance cover) rates particular mention.But it's not just sections of the finance industry that are playing the Henny Penny card.With other business groups pushing to scrap the compulsory super increase, the real danger for the dissenting fund managers and financial planners is that they'll be denied the cherry of the proposed reforms - and left with the pips.If that wasn't short-changing future retirees and the parts of the industry that are genuinely embracing change, it would almost serve them right.
© 2011 Sydney Morning Herald