Speaking at the ASIC Annual Forum on Monday, AustralianSuper chief executive Ian Silk said the concept of the population being comprised of “fully informed consumers” is to talk of some “utopian nirvana that a) doesn’t exist today, and b) won’t exist for the foreseeable future”.
Mr Silk spoke of the various ways to address market imperfections, including changes to product design and industry structure.
“One way of addressing market imperfections is by having informed consumers,” he said, adding that the concept should be raised in the context of FOFA.
The government has been saying that maintaining the current FOFA regime will not guarantee poor investment advice, and that the best way to avoid poor advice is to have informed consumers, he said.
Mr Silk pointed to Australian Bureau of Statistics (ABS) literacy figures, which show that on a five-point scale, where 1 is the lowest form of numeracy and literacy and 5 is the highest, 44 per cent of Australia’s adult population are level 1 and 2 for literacy, and 54 per cent are level 1 or 2 for numeracy.
“So, let’s call it half the adult population have substandard numeracy and literacy skills,” he said. “In practical terms, that means that they struggle to comprehend an electricity bill and struggle to comprehend their own payslip.
“That is why those who want to maintain the current FOFA regime do so with a fair amount of zeal.”
Mr Silk compared the ABS findings to the situation in which he was speaking, making clear the distinction between the “real world” and the financial services sector.
“In a room of this group at an ASIC Forum at the Hilton Hotel in downtown Sydney, you think of those figures and you think they’ve got to be wrong,” he said.
“But that is the real world. We are not the real world – the financial services sector is not the real world.
“So to talk of informed consumers, assuming the whole population are informed consumers, is to defy reality.”
From the tone of this discussion Australian Super’s chief, Ian Silk appears to have taken on a new role for Industry Fund trustees – that of financial guardian (in the light of the illiteracy and ignorance of the members of those funds!?
I hope he will resile from that statement in due time!
This is a problem in virtually every aspect of life. Be it buying an over priced loan for a car or a home on no or little deposit or in this case a Super fund. Too many people are just ignorant.
Yet we are only concentrating on the last item
Mr Silk neatly highlights an uncomfortable truth about the Australian population’s struggle to comprehend even basic financial services products and advice.
And it is this weakness that the big banks are fully aware of and are pushing so hard to leverage in seeking the over-reaching windback of FOFA reforms put in place to protect Australians from the product-flogging that exploits this fact.