Who do the industry bodies actually represent?

As the Federal Treasury works to find common ground on financial services reform, Mike Taylor suggests that an examination of those being consulted raises as many questions as it answers.

Which organisations are sufficiently representative and therefore deserve a place at the table in the discussions about the Federal Government’s proposed financial services reforms?

That is a question that needs to be answered as Treasury officials oversee discussion amongst the stakeholders, which it hopes will result in the finding of at least some common ground.

However, when you place the Financial Planning Association (FPA), the Association of Financial Advisers (AFA) and the Financial Services Council (FSC) together in a room with the Australian Institute of Superannuation Trustees (AIST), the Association of Superannuation Funds of Australia (ASFA) and the Industry Super Network (ISN), there is little likelihood of finding extensive common ground.

If the exercise being undertaken by Treasury reveals nothing else, it clearly exposes the fact that there exist two distinct and bitterly opposed tribes in the financial services industry and that at least one faction within one of those tribes has no desire to find common ground.

The two tribes are, of course, the retail side of the financial planning and funds management industries and the not-for-profit sector formed by the industry superannuation funds.

Arguably the only organisation that successfully straddles this divide is ASFA, which boasts a membership inclusive of both industry funds and retail master trusts.

Recent reporting of the industry discussions chaired by Treasury earlier this month suggested that the ‘umbrella group’ for the industry funds was the ISN and that it was representative of five million industry fund members.

It is hardly a secret that it is has been the ISN that has been a hard-line advocate of radical change in the financial planning industry.

The ISN has been the vehicle via which industry fund stalwart Garry Weaven intends continuing to prosecute a war against the financial planning industry while ‘winning the peace’ on commission-based remuneration.

But just as there are plenty of financial planners who would argue that their interests are not appropriately represented by either the FPA or the AFA, there are more than a few industry fund trustees who would argue that their views and interests are not being represented by the ISN.

Indeed, there are many industry fund trustees who are entirely comfortable with their funds being affiliated to the AIST and ASFA, but are less comfortable with the hard-line strategies of the ISN.

While the industry super funds have almost always presented a united front to the media when discussing the major issues, this actually belies some of the tensions that exist within their ranks and the reality that a number of larger funds are increasingly choosing to chart their own course on particular policy issues.

One of the realities needing to be grasped by those Treasury officials convening the talks about the proposed financial services reforms is that when Treasury talks to the representatives from the ISN it is, in fact, talking to employees of a section of a vertically integrated financial services conglomerate.

The ISN is a division of Industry Funds Services (IFS) which, along with Members Equity Bank, are in turn wholly owned subsidiaries of Industry Super Holdings Pty Ltd.

Industry Super Holdings Pty Ltd is owned by a number of major superannuation funds including AustralianSuper, CBus, HESTA, Hostplus, Unisuper, Maritime Super, Sunsuper, Tasplan, Westscheme, TWU Super and AGEST.

Given this structure, it can be argued that if each of these super funds are regarded as shareholders in a major institution, then there is little difference between Industry Super Holdings Limited and Westpac, and that Industry Funds Services is little different to BT.

Where ISN describes its role as being an umbrella organisation for Industry Super Funds and “coordinating projects on behalf of a number of Industry SuperFunds”, the AIST describes itself as being a national not-for-profit organisation whose mission is to promote and protect the interests of Australia’s $450 billion not-for-profit superannuation sector.

The question, therefore, is which of the two organisations — AIST or ISN — could be deemed most representative of the broader industry superannuation funds’ constituency and how much more weight should be given to its position on policy issues than that afforded to ASFA.

On the other side of the tribal divide, the organisation most similar to AIST and ASFA is the FSC, because rather than representing individual members, the FSC mostly represents larger companies and institutions.

By comparison, the FPA and the AFA are arguably more representative of individual members in the form of financial planners.

The question that should be foremost it the minds of those in Treasury convening discussions and inviting stakeholders is: “who is really speaking for whom?”