FOFA debate hurting investor sentiment

The unbalanced discussion about the proposed Future of Financial Advice (FOFA) reforms could be a large contributor to poor investor sentiment, which keeps pushing managed fund sector inflows further down.

According to Australian Unity head of investments David Bryant (pictured), both the Government and the industry have failed to acknowledge the good components of the financial services sector during the FOFA discussions.

The Government announced the reforms in April last year, promising increased transparency in hopes to oust the bad apples and prevent events such as the collapse of Storm Financial and Westpoint Group from happening again.

Bryant argued that Australia already had a good superannuation system, a strong regulatory environment and a well functioning funds management industry, and that FOFA needed to be seen as a way to improve the system.

“A lot of the noise around FOFA, MySuper and other things – while they are very good public debates to have about managed investments, advice and superannuation – I think what a lot of the people hear is that there is something wrong with the system,” Bryant said.

“At the moment, FOFA is simply contributing to poor sentiment because it is being heard as ‘there are problems to fix’ rather than ‘there are improvements to make’,” he added.

Plan for Life figures revealed the December 2010 net inflows for managed funds amounted to only $152 million, which is in stark contrast to almost $1.2 billion in the previous quarter or $20 billion from the June quarter 2007, before the global financial crisis (GFC) hit the markets.

While the researcher is still in the process of analysing the numbers from the March 2011 quarter, AXA’s general manager for platforms, Steve Burgess, said the company had seen a “sluggish and slow” first quarter of the year, even though there appeared to have been a slight recovery in the second half of 2010.

However, Burgess said he didn’t believe the FOFA talks had an effect on largely disengaged investors as yet.

“It’s putting a burden on planners and dealer groups, but from the client perspective, I think they are really not engaged in that debate or that argument as we speak right now,” Burgess said.

The Association of Financial Advisers chief, Richard Klipin, said the declining net flows should be of concern to all members of the financial services industry, but added a combination of factors affected the investor sentiment, such as the hangover from the GFC, as well as Australia’s multi-speed economy.

“There is no doubt that the media commentary around FOFA and product and advice failures are obviously weighing in the mind of consumers, but I wouldn’t set it as a major feeder,” Klipin said.

Plan for Life senior manager Daniel Morris said the figures were not particularly worrying as yet despite the low net inflows, due to the market volatility which was present ever since the GFC recovery began.