Are industry super funds playing with a stacked deck?

Perceptions exist that the industry funds have succeeded in having the Government stack the cards against financial planners. Mike Taylor writes it is up to the Assistant Treasurer, Bill Shorten, to prove them wrong.

Australia’s industry superannuation funds are unique. No other country possesses a similarly influential grouping of not-for-profit pension funds.

According to the latest data published by the Australian Prudential Regulation Authority (APRA) covering the December quarter of 2010, industry superannuation funds account for $246.7 billion of Australia’s $1.32 trillion in superannuation assets.

The only faster-growing sector of the superannuation industry is self-managed superannuation funds, which account for around $420 billion.

These facts then need to be considered alongside the reality that a significant number of Australia’s industry superannuation funds choose to belong to and fund one of the most tightly-knit industry groups in the nation – the Industry Super Network (ISN).

The ISN, for its part, can then be held responsible for the highly successful television advertising campaigns built around the slogans ‘compare the pair’ and ‘from little things, big things grow’ – as well as the vigorous political lobbying campaigns around superannuation and financial advice.

It is a measure of the success of the ISN that industry funds were the unquestioned winners when it came to gaining and retaining members following the introduction of choice of superannuation fund, and the Government’s introduction of regulatory dispensations to enable an intra-fund advice regime.

Now, with the Assistant Treasurer, Bill Shorten, expected to make a key announcement on the Government’s intentions with respect to the Future of Financial Advice (FOFA) reforms within the next few weeks, questions are being asked about the power and influence of the industry funds – including the prosecution of a broader political/economic agenda.

The concerns around the existence of a political/economic agenda go something like this. The industry superannuation funds have evolved out of the same constituency as the Australian Labor Party (ALP) – the trade union movement – and the ALP Government will use the FOFA changes to benefit its natural constituency, which includes the industry funds.

The problem for Shorten in countering such assertions is that many of the FOFA changes do, indeed, appear to have the effect of benefiting industry superannuation funds at the expense of independent financial planners, including adopting much of the language utilised by the industry funds in prosecuting their campaign.

Further, the minister as a former national secretary of the Australian Workers Union has readily admitted that his union role saw him become a trustee director of one of the industry superannuation funds which ultimately merged to form Australia’s largest industry superannuation fund – AustralianSuper.

He would be aware that while the make-up of many industry superannuation fund trustee boards, based on trustees drawn equally from representatives of employees and employers, might be considered to have delivered balance, there are many people who regard industry funds as an extension of the trade union movement.

That perception of the industry funds being an extension of the trade unions was not assisted by Shorten himself when, last month, he had no hesitation in using an address to the Conference of Major Superannuation Funds (CMSF) on the Gold Coast to implore industry fund trustees to support his Government’s push for a Mineral Resource Rent Tax (MRRT) because it was linked to the delivery of an increase in the superannuation guarantee from 9 to 12 per cent.

The concerns about the existence of a broader industry superannuation fund political/economic agenda were reflected by the managing director of Fiducian Financial Services, Indy Singh, who questioned both the amount of money spent by industry funds on advertising campaigns undermining the value of advice and their motivations for doing so.

Participating in a Money Management roundtable last week, Singh said he took exception to a lot of the industry fund advertising and he wanted to know how many hundreds of millions of dollars they had spent on advertising “rubbishing financial planning”.

“And now they want to do it [financial planning] themselves,” he said.

Singh said he was concerned that through “stealth and guile” industry funds would end up controlling the very same business they had ridiculed in the past.

“They will own 60 per cent of the industry and they can do what they like,” he said.

Singh said he believed it was in the interests of the industry funds to bring the financial planning industry to its knees via issues such as opt-in or commission structures, which would in turn see more money flow into the industry funds.

Singh’s views were not shared by the other participants at the Money Management roundtable, but they did reflect much of the sentiment expressed by planners responding to stories on the Money Management website.

While not all of the participants in the roundtable supported Singh’s view, they acknowledged that the industry funds had proved highly successful in prosecuting their agenda which had, in turn, given rise to the proposed FOFA changes.

The challenge for Shorten when Treasury ultimately delivers the first draft of the FOFA legislation will be to scotch any conspiracy theories by ensuring that it does not unduly favour one side over another.