The fifth round of public hearings in Melbourne didn’t feature individual customer stories tales of woe, the focus was on the murky world of trustees culpability in bad member outcomes and a general lack of transparency. You might say it was all about superannuation products that do the wrong thing.
Last Friday Counsel assisting the Royal Commission lodged a 222 page submission on the superannuation hearings. Sadly, a long list of financial institutions have a case to answer in relation to breaches of superannuation law and putting their own interests in front of their superannuation members. In addition the commission is concerned with ineffective regulation enforcement by ASIC and APRA.
We take an active role in recommending the most effective superannuation arrangements for our clients and thankfully none of the arrangements we recommend received adverse comment. Nevertheless the stories we’ve heard are shameful and we support all initiatives to eliminate bad outcomes.
We need to remind ourselves that the Royal Commission’s focus is mainly on the outliers, not on the mainstream.
We remain firm supporters of superannuation as a system that provides savings disciplines, tax incentives and choice for all Australians.
When considering superannuation it’s tempting to buy into the negative arguments, many of which are spurious. Two such arguments revolve around inadequate returns and fees.
Recent data from Morningstar showed that over the last 25 years, taking the Australian Superannuation system as a whole, returns have been 5.1% per annum over inflation. This is highly competitive at the international level. Further, Rice Warner reports that over the last 15 years Australian superannuation fee levels have fallen by 27%.
Nevertheless, with its complexity and tarnished image, superannuation is becoming a turn-off for many Australians. Without clear leadership, trust and a lack of education about the opportunity superannuation presents we as a country will become poor savers and overly reliant on a strained and complex welfare system.
Turning to the advice we give, many of our clients value the ability to control and choose each of their underlying investments. This creates additional complexity in the delivery of advice over and above a single product solution offered by pooled superannuation funds. When we recommend superannuation or investment products, we need to consider the right elements of control, detailed disclosures of product structures, risks, performance and fee levels at both the summary level and the detail. We use a range of technologies and research platforms to help us, but as the regulatory requirements get more prescriptive, we find that our advice documents are getting longer not shorter! We have a duty to explain the basis of our advice and we recognise that our clients engage in different ways. Therefore always let us know if we are not communicating at the “right” level for you. The right communication style will help maintain your trust, engagement and confidence in your strategy.
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General Advice Warning: Any advice included in this article and associated links is general in nature and does not take into account your objectives, financial situation or needs. If a product we recommend has a Product Disclosure Statement (PDS), you should read it before making a decision. Past performance is not a reliable indicator of future performance. We do not endorse any information from research providers that we provide to you, unless we specifically say so.