Today, the outlook for financial services in Australia is looking bright. The industry is more competitive, efficient and innovative than it has ever been, providing a vast array of financial solutions and ways of accessing them.
Financial advisers are becoming increasingly professional, efficient and innovative.
The engagement of the public with financial services is increasing at a phenomenal rate, as people realise the need and the desire to take responsibility for their financial future. This has been partly driven by a strong shift in social responsibilities away from government to individuals, and the strong emotional drive to self-responsibility and financial independence. It has been driven by compulsory superannuation and also by the increased accessibility of financial information through the media and electronic business channels.
However, amidst all the growth, competition and change, it is vital that as an industry, we don’t lose sight of our sense of purpose and role in people’s lives, in helping them grow, manage and protect their wealth. And government has a big role to play in this as well.
The regulatory reforms arising from the Wallis Enquiry established a good modern framework that reflects the convergence between institutions and markets. The tax reforms have established a fairer, more efficient revenue base for the nation. The idea behind the FSRB was good but again appears to be floundering because of political intransigence. One of the unintended consequences of the Ralph Reforms is the discouragement of capital guarantees and the transfer of risk to the customer. The pursuit of superannuation member choice has to a large extent been a protracted and irrelevant distraction while the industry has largely moved to incorporate investment choice in its offerings.
Meanwhile, the pressing issue of how to improve national savings, reduce the social security bill for an aging population, and encourage individuals to provide for their own retirement, has been left on the backburner. The Government really needs a sense of perspective and priorities in this area.
The superannuation system has established a base level of retirement savings for individuals and the nation, and created a growing pool of investment capital that has helped make Australia a substantial participant in global financial markets. However, many people remain under-funded for retirement, which is a problem for them and the community.
The well-documented problems of complexity, lack of cohesion with the social security system, and taxation disincentives need to be addressed and there is now a strong consensus emerging on these issues. The politicians may think that this does not resonate with the public but that is changing fast, as people increasingly feel a sense of ownership for their retirement nest egg.
People support the concept of superannuation. It is their money and their retirement savings. What they don’t support is the confusing complexity and never-ending tinkering, the Government using it as a revenue cash cow and the lack of clear and consistent incentives.
The financial sector has supported and co-operated with the Government’s plans to unify and streamline the industry’s regulatory framework, as well as the major tax reforms. They now need to finish the reform job on our national savings and retirement income policy in a way that establishes a long-term framework that has bi-partisan and community support.
Although individuals are taking far greater responsibility for their financial health, the role of financial institutions and advisers in helping people grow, manage and protect their wealth, has not diminished but simply changed in focus.
Financial institutions and advisers have moved from a paternalistic role to one of partnership and empowering clients to make informed choices about their financial future.
We have progressively moved from a situation where Government and institutions shouldered most of the investment risk for long-term wealth accumulation and retirement funding, to a situation where clients are now more directly exposed to investment market risk. This is highlighted by the trend from defined benefit and defined contributions, to capital protected schemes, to balanced funds, and now to a situation where clients can and do access almost any investment option.
While it is good that people are taking responsibility for their financial future, with responsibility comes risk and this must be informed risk suitable to investors’ circumstances and goals.
Financial institutions and advisers need to not only provide financial solutions but to communicate with, educate and advise clients. We need to help people cope and prosper in a world of more opportunity but far less certainty.
Perhaps there is too much emphasis on short-term investment performance, particularly in the area of superannuation, when the real investment time horizon is decades not years. Financial institutions and advisers need to take a long-term view and ensure clients understand the balance between risk and reward.
Continually chopping and changing between managers, asset classes and investment vehicles is not the way to long-term financial independence. We may have moved to self-choice but if people lose their financial security, they will always look for someone to blame.
<I>Rod Atfield is Managing Director of Mercantile Mutual. He has spent a 40 year career with Mercantile Mutual and will retire at the end of this year.
