Aleks Vickovich –
The announcements regarding amendments to the FOFA legislation were warmly welcomed by many within the financial services industry. Significant cost-saving measures and several key red tape reduction measures are included. So, from a government policy perspective, why does the current legislation need to change?
Arthur Sinodinos –
Well, from our perspective in Opposition, we’d had the benefit of Coalition senators going through the previous government’s legislation when there was a parliamentary committee, and the Coalition senators produced a dissenting report which had about 16 recommendations for improving the legislation by reducing the red tape that we saw associated with it.
Our basic issue is that we want the consumer protection of FOFA, but without the costs that Labor put into the system. And so what we’ve done is take measures to reduce those red tape and related costs, reduce the compliance burden on advisers and others and thereby reduce the potential cost impact on consumers – because unless we have affordable financial advice, less people are going to be getting appropriate advice and that’s not good for planning for their future with certainty.
Aleks Vickovich –
If it’s about increasing the number of people who are getting access to advice, would the government be open to providing other sorts of incentives, such as tax deductibility?
Arthur Sinodinos –
You can often look at things in isolation and say, well, that sounds a good idea on its merits because there are social costs and benefits in doing it, or economic benefits in doing it, but the challenge for us in the period ahead is that we have to look at the Budget as a whole. When I and Joe Hockey and others sit down and look at the state of the Budget, our focus has to be – over the next 12 to 18 months – putting in place the measures to get the Budget back into surplus in a reasonable timeframe and that does mean it’s very hard to commit to new measures.
Peter Costello used to say that the best saving you’ll make is the spending you don’t undertake. It’s often the easiest decision to make as well. So for us, I’m not contemplating tax deductibility of financial advice at this stage. What I am contemplating is continuing to work with the industry to raise standards, to implement the legislation we’ve got, make sure the savings in the legislation get passed on to consumers, and from there we have as many people as possible getting affordable advice.
Aleks Vickovich –
You’ve announced a number of areas in the financial advice space you said the government is interested in reviewing, among them PI insurance for financial advisers, but also education levels and possibly the [Financial Ombudsman Service]. Can you tell us a little bit more about that review and what might take shape?
Arthur Sinodinos –
We’re still thinking about the way the review might be conducted. We’re not wanting to go out there and announce a full-blown, very formal review; what I really was setting out was a work program [with industry] because it’ll be in consultation with the stakeholders around issues like the cost and availability of PI, indemnity insurance, [and] the issues around education standards and how you formalise those – ASIC and others have proposed a national exam. We haven’t put our hands up immediately for measures like that. We want to talk to the industry about that.
So there’s a whole slew of issues, [including the] Financial Ombudsman Service where, again, we’re not looking to make radical change but we are willing at this stage to at least establish what is the case against some of the operations of the Financial Ombudsman Service and what are the best ways to remedy any [known] problems.
Aleks Vickovich –
Self-managed superannuation is obviously increasingly important to financial services businesses but also something that is being spoken of more readily among the wider public. Does the government think self-managed superannuation has been a good thing for the economy and a good thing for the superannuation system?
Arthur Sinodinos –
At one level, you have to say it’s a free country so if you decide you’re going to manage your super yourself, you should have that opportunity. The fact that people in increasing numbers have voted to do so suggests that they’re keen to manage their own financial affairs and that they’re keen to, if you like, have more control over the decisions which have previously been made in their name.
Part of it was a response to the global financial crisis, part of it was the fact that people are starting to get bigger and bigger potential retirement incomes and for them, they’ve become more and more concerned about how those potential retirement incomes are going to be generated and ultimately allocated. So there are a lot of good reasons why it’s developed.
From a Liberal Party point of view – if I’m being crassly political – we love the philosophy of people who are taking decisions and taking responsibility for themselves. That’s why it’s got a separate light-touch regulatory regime, principally through the tax office.
We’re not looking to formalise the sector in the way you have the APRA-regulated funds. It’s horses for courses.
So, we keep an eye on the sector [and] we want the sector to grow and prosper within a context where Australians have a proper choice between doing things for themselves or doing things through other types of superannuation funds.
Aleks Vickovich –
Paul Howes of the Australian Workers’ Union has likened SMSFs to mortgage-backed securities in the United States and said the sector is heading towards some sort of calamity. Where does the government stand on a compensation levy for the SMSF sector and for those investors who might be aggrieved?
Arthur Sinodinos –
Our philosophical position is that it’s a light-touch regulatory regime and therefore people have responsibility for their financial decision-making and it’s not up to government to compensate them and potentially create a moral hazard which encourages excessive risk taking.
I mean the real answer to Paul Howes is that people like him prefer the money to be tied up in the industry funds where people like [him] make decisions in the name of their members. Well, we want a system where the members drive the change and that’s why we want the fund governance sorted out so industry funds and other funds have more independent directors on there and there is more member power. We want people power in industry funds and other funds, we don’t want union power.
Aleks Vickovich –
So is that one of the main intentions of the Murray Inquiry into the financial system?
Arthur Sinodinos –
Well, the Murray Inquiry is a holistic inquiry into the financial services sector, but yes, the superannuation sector is an important and growing part of our overall savings pool and of our overall financial system. So the decisions that are made by superannuation trustees and by asset managers and others in their name have very important implications for capital allocation within Australia.
We want a system of retirement incomes where people are confident about [it], it’s got stability and it’s got certainty so people can plan confidently for their future.
This article first appeared in the March 2014 edition of ifa magazine
Click here to subscribe to ifa magazine.
