Not unexpectedly, most advisers we interviewed were in favour of choice of fund legislation.
It is about empowering the investor, saysCentrestone’s Rob Keavney, and that is a good thing.
“I think there is a need to write the law to enable those people who can make good judgments or who can source good advice to have as much control as possible over their own investments,” he says.
Empowering the investor is all very well, but isn’t it possible — highly likely, even — that investors will make decisions that are not in their best interests?
There are two sides to that argument, Keavney says.
“On one side, will choice mean that some people will make bad decisions chasing last year’s good performers? Yes, it will. On the other side, have trustees done exactly that? Yes, they have. You can’t take the human error out of the process with any change in law.”
John Hewison, from Hewison & Associates, also supports choice.
“I believe people should have the right to choose a particular fund or control their own destiny if they so desire,” he says.
However, he also expresses some concerns.
“My concerns are that the consumer has to be protected from opportunists and their own lack of knowledge and sophistication.”
For that reason, Hewison believes that the obligation to seek advice must be mandatory.
“Sadly, the issue of control over the quality and reliability of advice cannot be ignored and I do not have an answer as to how this can be administered. I also expect that many super fund members with fairly modest balances will find it difficult to obtain advice at a price they can afford.”
While neither Keavney nor Hewison expects their business to be profoundly affected by the introduction of choice legislation, Laura Menschik, fromMillennium Financial Services, says choice is likely to result in more business from both existing clients with superannuation that is currently tied up with an employer or industry-based fund and from new clients looking for advice.
“Choice will increase my ability to advise my existing clients more thoroughly,” she says. “And because I charge a fee for service, that will mean more business. In the case of new clients, they are going to need advice and I’m here to help them.”
Hillross’ Peter Nonnenmacher expects choice to also open the door to other, related business.
“Reviewing superannuation will present an opportunity to review the risk arrangements in the super fund,” he says, “and many are not up to standard.
“Unless an individual is in a really good company with a good defined benefit fund — and these are increasingly rare these days — risk insurance is not a consideration. I find almost 100 per cent of my clients are either underinsured or not insured at all through their superannuation funds.”
But Nonnenmacher warns that if planners want to take advantage of the opportunities that choice of fund legislation will represent, they had better act now.
“If corporate super is your market, then obviously choice will be very good for your business,” he says. “But you will still have had to have done the ground work for it, because if you haven’t already established a relationship now or in the very short-term, you will be competing with other financial planners for the business — all planners will be on the same bandwagon.”
Robert Kiddell from Delburn Garrisons expects another side-effect following the introduction of choice legislation — and that is a more demanding investor with a greater thirst for education about how their money is invested.
“I think highly educated employees will demand more information and control,” he says.
“I don’t think it will solely be about return either. We may also see a rise in ethical discernment of funds with marketing departments communicating to such groups that there are no ‘sweat shops’ or companies with other repugnant labour practices in their fund’s portfolio and likewise no uranium miners and poker machine companies.”
He says funds might find it is even more important to positively position themselves.
“For example, funds might start advertising things like ‘by switching a quarter of your super to ABC Fund you can help to support high tech Australian sunrise industries and share in the superior returns from genuine long-term investment’.”
Member choice, according to Kiddell, is ultimately inevitable, but he says that however it plays out there will always be a market for quality fee for service advice when the issue is as critical as retirement savings.
“I am a great supporter of employee fund choice but perhaps with the rider that advice on choice is in a genuine fee-for-service environment, rather than on a commission-driven model.”
