O’Dwyer directly attacks industry funds advertising

The Minister for Revenue and Financial Services, Kelly O’Dwyer has launched a direct attack on the Industry Super Network (ISN) and its expenditure of superannuation funds money on television advertising campaigns.

Addressing the Association of Superannuation Funds of Australia, O’Dwyer removed any doubts about the direction of the Government’s legislative amendments on governance and the terms of terms of reference of the upcoming Royal Commission into the Banking and Financial Services Industry.

While telling the ASFA conference the Government’s legislation was aimed at both industry and retail funds, she then stated: “It is disappointing that some industry participants have used members’ money in a multimillion dollar advertising campaign and lobbying effort in their bid to defeat increased transparency and accountability in the sector.  One can only wonder why”.

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Elsewhere in her speech, O’Dwyer also committed to pursuing the financial services legislation already on foot in the Parliament, including the establishment of the Australian Financial Complaints Authority (AFCA).

As well, she defended the Government’s actions in the financial planning space arguing that changes such as those flowing from the Life Insurance Framework (LIF) and the new education and professionalism standards were justified.

“We have legislated to lift the professional, educational, and ethical standards of financial advisers, as overseen by the Government’s new Financial Adviser Standards and Ethics Authority; and to limit the incentives paid to advisers for the sale of life insurance products, to ensure that consumers are treated fairly,” O’Dwyer said.

“We have significantly bolstered the powers and resources of the Australian Securities and Investments Commission (ASIC) and have introduced industry funding for the regulator, to make sure that that those financial firms who cause the need for regulation, pay for it.

“And critically, we have legislation before the Parliament now which will establish the Australian Financial Complaints Authority (AFCA), a one-stop-shop to provide consumers of financial products and services with independent and timely access to justice, and access to compensation where appropriate. AFCA will be a game changer in improving how financial disputes are dealt with in Australia.”

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O’Dwyer should ask why those independent directors on the banks and retail funds are not doing a better job in lifting returns of retail superannuation funds for their clients. Does O’Dwyer know that half of the directors on industry funds are employer representatives? Maybe she needs to know that industry funds are not just union funds.

Yes Hedware, what are those silly directors doing on the boards of banks and retail funds? They should immediately sell down large portions of cash and fixed interest in their balanced funds and replace them with growth and unlisted investments. Who cares about mislabeling or exposing clients to higher risk. While they are at it, they should reduce the quality of insurance products and increase the premiums. Heck, they may as well take premiums out of client accounts without their permission. Apparently this behaviour is acceptable and should be encouraged. So much so, that ASIC endorsed industry funds by using the brand name in their example SOA.

Headware you cannot not win your argument. Your position is indefensible. It is in the best interest of the members for a superannuation board to include independent directors. I think the legislation needs to go further than it does, it should require a majority of independent directors and that the chair is an independent director rather than only requiring that a third of the board need to be independent directors.

It will be interesting to see what happens to the return for industry super funds when they are forced to be transparent????

So industry funds often cost more for risk insurance than retail policies that pay approx 100% commission to advisers. Industry fund policies on average are poorer quality (definitions) than retail (TPD and IP). Industry funds can access cheaper group risk rates than are available for retail.

There's something missing here, retail products are better, they pay commission yet they are often CHEAPER than industry funds.

There's no openness of disclosure here, all I can see is smoke and mirrors.

Given this apparent gouging, where does the money go? Does it benefit the directors (unionists), does it help pay fund operational expenses so they can claim low fees, does it pay for the advertising? no one outside the union funds know.

What I do know is this is likely a breach of fiduciary duty as they are not treating all members equally as some members are funding something other than their risk insurance or their members benefit.

Huh !! what does that mean ? Re
It will be interesting to see what happens to the return for industry super funds when they are forced to be transparent.
They can be as opaque as they like as long as members continue to receive the far better returns they have been getting all along instead of the poor returns by many of the retail funds !!
Surely it cannot be wrong to provide returns to members ??

What's the going rate per comment for all these pro Industry Fund posts johnp? Is there a union for Industry Fund shills? I'd imagine it'd be a pretty good one, considering all the funding they receive from Industry Fund donations.

Matt there is never any substance to Mr/Mrs Johns posts, just the old returns chestnut which of course is compared on totally different asset allocations so really the greatest red herring thrown about this decade. Maybe Mr/Mrs John is a union bot, no substance just parrot parrot parrot the same thing over and over. Yes who cares if we get returns through comparing balanced to growth funds to get people in, and holding massive chunks of property that we lease to our mates and revalue as we wish , shell be right jack, no house of cards here. Mr/Mrs John ever seen the CUBS art collection? I am sure the tradies and so forth love members money being spent on something they will never see or feel or for that matter ever get any value at all out of. How can a company that holds all these investments be not for profit? It beggers belief, its just spend the profit , not not for profit.

JohnP, are you seriously suggesting that allowing ISF's to be opaque or in other words allowing possible creative accounting in order to show false but higher returns should be accepted?
Your comment only confirms the absolute need to force the transparency of superannuation funds. Why are you so frightened of independent directors and a Royal Commission digging into your activities?

O'Dwyer working for the banks again...I'm not a fan of industry funds but O'Dwyer's comments on the LIF are wrong. Its been proven to be a fictitious plot between her and her FSC buddies and detrimental to the actual end customers.
This is a person unfit to be in her role.

We really need to look at the poor performance of industry super funds. Overall poor when compared to advised clients plus the deficiencies in administration are causing real financial heartache for all users. If you look at a not for profit fund like First State Super. Performance in bottom quartile over 10 years and millions lost by not paying anti detriment payments. No wonder this has now been abolished. Deposits go into a bucket account and have to manually sorted. Even Clubplus takes 9 months to pay out a death benefit. Another super fund serving the needs of QLD Nurses has just two staff members working in their call centre. As one is on annual leave I have to wait till next fortnight to have my insurance query answered.

"We really need to look at the poor performance of industry super funds. Overall poor when compared to advised clients"

Firstly, it is investment performance you are questioning or the value of being an advised client? As it is perfectly possible to be an advised client within an industry fund? If it is investment performance you are questioning, there is absolutely no evidence to substantiate that claim. Industry fund investments are (for the most part) held to the same reporting standards as any other major super fund or fund manager. Individually advised portfolios have no such standard or scrutiny. The issues with reporting, benchmarking and analysing individually created, adviser managed portfolios are almost endless.....money or time weighted, before or after adviser fees, what portion of the adviser fee was 'strategy' and what part was portfolio management, peer or market benchmark? how does one practically measure volatility, drawdown & tacking error to report risk adjusted numbers (in fact, what retail platform or planning software is even capable of providing those stats) and who audits those figures before the are provided to clients?

As someone with 20 years in the RETAIL platform and fund manager space, the claims of adviser portfolio performance absent any quantitative evidence never ceases to amaze me (and before you go there, the ability to influence behavioural finance outcomes are a completely separate issue to portfolio construction and subsequent investment performance!)

Kelly is to be congratulated on her transparency statements and the establishment of the Australian Financial Complaints Authority. However, it is also important to heed the warnings of the International Monetary Fund about managing risk, see Christine Lagarde's post about Fintech here: https://blogs.imf.org/2017/06/20/fintech-capturing-the-benefits-avoiding... AND the Bank of England's Chief Economist, Andy Haldane, see here: https://www.businessinsider.com.au/interest-rates-5000-year-history-2017.... This is what the warning is about: http://5starinnovation.com/hamburg-g20-leaders-innovations-needed-for-be.... Australian consumers will not be happy if they are caught in this trap after having been warned about it, even though it is an international issue impacting on many countries.

Keep up the good work, Mike. Discussing issues and heading them off before they become complaints is the best approach.


John Cosstick

The comments on this subject have overlooked the fact that the future of work is changing very quickly and will have a major impact on retirement superannuation and the longevity of retirees' funds. If we follow the trends in the United States and Europe 35%+ of the workforce will be self employed. There will be no Fair Work Commission, no SGC, poor portability of ex employers superannuation insurance and the risk profile assessment of retirees will have to include the work life balance of retirees, also know as retiring part time. The American Association of Retired Persons (AARP) has not waited for the Financial Planning Standards Board to change its policy, but gone right ahead with the reform, see here: https://www.aarp.org/work/working-after-retirement/info-2017/retiring-pa.... The dispute between retail funds and industry based funds and which is the best is minor compared to this much needed reform. This article is a summary of the issues:

Disruptive Innovation and Culture Change Is Coming To Global Retirement
Innovation Point
Traditionally, the mainstream approach and process when completing a financial plan for clients is to identify primarily their financial goals and to a lesser extent related life goals. These goals can vary according to life stage, typically:

· Young to mid-life
· Mid-life
· Pre-retirement
· Retirement.

The description of the life stages and goals may vary slightly from country to country. The standard of care guidelines is set out by The Financial Planning Standards Board (FPSB), but details may vary slightly from jurisdiction to jurisdiction and with each country's definition of fiduciary duty. However, the FPSB 's overarching Mission Statement , Code of Ethics and Professional Responsibilities as outlined in their Principles, have guided the global evolution of financial planning as a profession.

The rapid rise of technological changes empowering people to work longer and tailor their work life balance is reinventing retirement as people start to realize they have a major longevity risk of outliving their savings. This is due to rapidly increasing medical advances and innovations challenging actuarial life longevity tables. These advances are constantly in the news.

The funding of the developed countries aging population has been identified and highlighted by the FPSB, The World Economic Forum (WEF), Organization for Economic Co-Operation and Development (OECD) and The International Monetary Fund(IMF).

The Innovation and Culture Change Required

The innovation required is transitioning to lifestyle financial planning so that pre-retirement clients will know what the impact of tailoring their life work balance will be on the longevity of their retirement funds. Governments will then be required to develop and implement policies that support this change. They have already identified the need, as shown by the background papers documented later in this article. The need for the implementation of this change has been known for a long time, perhaps 20 years or more, but it is against the current business models of banks and financial services companies. These business models will be forced to change as the populations realize the WEF's social media campaign, saying the pension crunch is coming, is right. An example of the ease of the availability of a country's demographic chart is here for Australia: http://ow.ly/6HtH305hKzM. The availability to the general public is likely to be similar for other countries.

Lifestyle financial planning will give rise to new industries to support its evolution particularly in financial technology, work life balance planning and developing post retirement skills in freelancing or micro businesses.
Innovation In Financial Technology To Support The Transition To Lifestyle Financial Planning
It is clear that not only should all regulatory jurisdictions have access to basic generic financial products' planning tools and consumer information, but also basic generic lifestyle financial planning tools and consumer information. This will give impetus to the change.

Any consumer contemplating retirement or transitioning to freelancing with a view to tailoring their work life balance should be able to see the impact on their financial situation and the resultant impact on the longevity of their funds. It is clear from the following articles that this has been known for a considerable time, but have been blocked by the culture of focusing on product promotion solutions.

The development of any lifestyle planning industries should be regulated under the umbrella of the FPSB as the potential for cybercrime is a clear and present danger. Juniper Research article dated 12th. May 2015 has stated (http://ow.ly/XyFz305jWVo) : "Cybercrime will Cost Businesses Over $2 Trillion by 2019." Lifestyle financial planning integration with financial planning would be very vulnerable to fraud.

The Financial Technology innovation is simple as it only requires the inputting of freelancing/other income into the retirement modelling to see the impact on the projections of the longevity of the funds. The culture change in supporting of the transitioning of the business models of banks and financial institutions is where development and change management will not be easy, but the background articles make it clear that the pensions crunch is coming and change is essential.

Background papers and articles:
The International Monetary Fund (IMF) has issued a report in 2012 - The Financial Impact of Longevity Risk (http://ow.ly/GBuo305lHhv):

o (http://ow.ly/GBuo305lHhv) has stated (In the Summary): "These risks build slowly over time, but if not addressed soon could have large negative effects on already weakened private and public sector balance sheets, making them more vulnerable to other shocks and potentially affecting financial stability."
The World Economic Forum (WEF) has identified that for many OECD Countries ( http://ow.ly/IuPv305lQFs ) have a serious economic problem because of the aging populations:

o These WEF articles relate to the ability to provide funding for future pension and social security schemes. They appear on WEF's website, Facebook Page and Twitter.

o WEF :The pensions crunch is coming – here's what to do about it (http://ow.ly/6kaS305dKAU)

o WEF- What are the economic consequences of rapidly ageing populations? (http://ow.ly/1PIK305dKKV)
The OECD Report - Pensions At A Glance 2015- The OECD and G20 Indicators:

o (http://ow.ly/iIp4305dNdE) has stated (Page 17): "The success of reforms aiming at containing future pension expenditure will depend on both the effective implementation of previously agreed measures and maintaining the momentum for further pension reforms. Particularly those that encourage individuals to work more and longer strengthen the productive capacities of the economy and thereby improve the scope of pension systems to deliver adequate retirement income promises. However, for those unable to extend their working lives, there is a risk that benefits may be insufficient to prevent a sharp fall in standards of living and even poverty in old age. " The general populations of countries are now realizing this.

Some Countries' Treasury Departments or equivalent departments have already identified this :

o e.g. Australian Government's 2015 Intergenerational Report - Australia in 2055 (http://ow.ly/yx4u305dL0r) has stated (Page 9) : " This change in our demographic structure will have important implications for the tax base and the ability of future governments to deliver services at the standards expected by the community."

The Financial Planning Standards Board (FPSB) Press Release of 12th. October 2016:

o FPSB CEO Noel Maye is quoted as having stated: " FPSB is using its research to present a set of considerations for financial planning professional bodies and financial planners to develop positions and approaches to address fintech and the future of financial planning community to discuss the finding of this report."
Freelancing and Micro Entrepreneurship are Empowering Individuals to have Second or Third careers in the Changing Future of Work. It is a global trend:

o In Future Working: The rise of Europe's Independent Professionals (iPros). Patricia Leighton. Professor of European Social Law at the IPAG Business School with Duncan Brown. (http://ow.ly/H5wp305jMtq) it was stated: "The EU has seen a new phenomenon - the rise of the independent professional, or iPro, often referred to as freelancers. Their rise represents a major shift in the nature of work and ways of working."

o In Freelancing In America: A National Survey of the New Workforce - An independent study commissioned by Freelancers Union & Elance-Desk in 2014 (http://ow.ly/iwMP305jNES) it was stated: "The primary finding: There are 53 million Americans — 34 percent of the U.S. workforce — working as freelancers."

o In the report Freelancing In Australia: An Independent research report by J. Edelman Inc. for 2015 (http://ow.ly/NrK7305jSup) it was stated: " The percent of the Australian workforce freelancing increased by 2 percentage points since 2014, from 30% in 2014 to 32% now. Based on the Australian Bureau of Statistics August 2015 estimate of the civilian labour force of 12.5 million, that equates to nearly 4.1.million people - 370,000 more people who have done freelance work than last year. "

This is an important financial and culture change that is essential for many economies. Countries must plan now as to how they are going to fund the retirement of a large percentage of their populations as they age. Please share this article on social media and help promote this cause because it is about our future retirement and lifestyles.

Australia needs to start on these reforms and leave the dispute between retail and industry based funds behind. In all probability these reforms will not be politically initiated. Already there are about 4.5 to 5.0 million workers involved in the freelancing economy in Australia. Although I am skeptical of some claims as to future longevity it is clear that the actuarial table are going to be wrong and the AARP (38 million members) have got the strategy right and the FPSB needs to follow

What do you think?

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