Why Govt's industry superannuation fund favouritism may backfire

History suggests the advantages flowing to industry superannuation funds from the Government’s Future of Financial Advice changes may ultimately prove to be a political liability.

Those with long enough political memories may recall that the Howard Government’s embrace of an industrial relations environment built on individual agreements actually grew out of the previous Labor Government’s efforts to move away from centralised wage fixation.

When the Keating Government lost office, its efforts in league with the Australian Council of Trade Unions via the Prices and Incomes Accord proved to be the thin end of a wedge conveniently utilised by an administration with a very different agenda.

What does this have to do with the efforts of the current Federal Labor Government to impose new legislation on the financial planning industry? Well, quite possibly, everything.

The degree to which the Future of Financial Advice legislation may ultimately prove to be the thin end of a wedge for a Coalition Government was underlined by the release of the second tranche of the draft legislation last week.

Read in the context of the activities of financial planners and financial planning dealer groups, the legislative package could have appeared quite draconian in the manner in which it dealt with issues such as conflicted remuneration, volume-based shelf-space fees and soft dollar benefits.

However, read in the context of the same rules being extended to apply to some of the operations and practices of industry superannuation funds, the draft legislation takes on an entirely different shape – potentially a wedge shape.

While the former Howard Government was no great friend of industry superannuation funds, nor did its legislative efforts unduly seek to hamper their activities or the manner in which they do business.

Some might argue that the implementation of choice of fund was aimed at undermining the industry funds, but if that were the case then it was a strategy which badly backfired.

Indeed, it was the Howard Government’s choice of fund changes which gave rise to the Industry Super Network (ISN) and its highly effective and successful “compare the pair” advertising campaign.

While every Coalition government is inevitably seen as a “friend of the big end of town”, most Labor governments are regarded as being siblings of the trade unions. Indeed, the Prices and Incomes Accord struck between the Hawke Labor Government and the ACTU in the early 1980s was seen as a strong and abiding policy partnership.

It is, of course, history that notwithstanding the existence of “the Accord” the Hawke Government managed to implement reforms which hit at the grass roots of the trade union movement – not the least being the lifting of the tariffs protecting the manufacturing sector.

Now, more than 20 years later, the Prime Minister, Julia Gillard has made clear that her government enjoys its own form of “accord” with the Industry Super Network, and that it has directly influenced the manner in which it has sought to implement its FOFA changes.

The Prime Minister’s views and that of her government were made clear in her address last week to an ISN luncheon in Melbourne where she referred to being amongst friends, and then told those attending they should be proud of ISN chief executive David Whiteley’s leadership, who had “stood with us from the earliest days in our determination to secure a better retirement for all Australians”.

“You stood with us to get rid of the conflicts of interest and the excessive fees. You stood with us to secure the iconic ‘opt-in’ policy to bring fairness to financial advice. You stood with us to bring simple, low fee super accounts to every worker who needs one. You stood with us to distribute super tax concessions more fairly so that all Australians benefit,” Gillard said.

“You play a role in broader policy debates, on occasion at the vanguard of public policy debates. Through ISN, you’re working with us now on issues from the upcoming tax forum, to banking competition policy and nation building infrastructure.”

A day later, the Government released the second tranche of its FOFA legislation, in which it sought to codify many of the commercial and employment relationships existing in the financial planning industry, including volume-based shelf space fees, soft dollar and other forms of conflicted remuneration, as well as the treatment of benefits from employers to employees.

As financial planners waded their way through the legislative proposals, it was hardly surprising that some suggested that what was sauce for the financial planning industry goose ought to be sauce for the industry funds gander.

Thus, reference was made to the benefits enjoyed by union officials and superannuation fund executives, including overseas study tours sponsored by fund managers, access to sporting venue corporate boxes owed to industry fund sponsorship of major sporting teams, and the use of volume rebates flowing from the granting of group insurance mandates.

In the examples outlined in the explanatory memorandum accompanying the Government’s second tranche of FOFA, no reference was made to the manner in which the same issues might be applied across a superannuation sector which has tentacles spreading deep into the financial planning industry.

What seems certain is that in the event the FOFA legislation passes both the House of Representatives and the Senate, any incoming Coalition government will not have to do more than pass some minor amendments to have it extended to cover superannuation fund operations.

When governments create wedges, they need to be careful how they are ultimately used.