Commission costs drive hot air

Leading industry funds spokesman Garry Weaven has claimed that the removal of the commissions-based arrangements within the financial planning industry would assist Australia in meeting its greenhouse obligations.

Referring to recent data on the cost of taking strong action on greenhouse obligations in Australia, Weaven said it was clear the cost was well within the scope of the superannuation industry “marginally lifting its game”.

“It may well be that by simply removing sales commissions and redeploying all of that capital somewhere [else] in the economy — just removing those commissions from super or forcing advisers to act in their clients’ best interests or otherwise shifting market share in favour of wholesale super through industry funds at the expense of the most poorly performing quartile funds — would be more than sufficient to offset any wealth effects of moving to a robust carbon capping and trading scheme,” he said.

Addressing the Conference of Major Superannuation Funds on the Gold Coast, Weaven questioned whether genuine competition existed within the superannuation industry as it currently existed in Australia.

“For the market system to work to the benefit of consumers, the existence of competition is necessary — and the contest has to take the form of competition around price,” he said. “However, the superannuation industry is characterised by a lack of clarity with respect to cost and a lack of standardised performance assessment.”

Weaven said this led to competition based on salesmanship, marketing strategies and often misinformation, heightened by the pervasiveness of commissioned-based selling.

“For that reason, the APRA licensing regime and the inherent benefits of economies of scale are far more effective in promoting efficiencies and cost containment than the so-called choice of fund legislation,” Weaven said.