Harvey RussellHead of Advocacy
Joseph SorbyExecutive Manager
19 November 2014
VIEW TO THE FUTURE:THE FINANCIAL
THE ADVICE EXCHANGE
SYSTEM INQUIRY
DISCLAIMER
This presentation is given by a representative of Colonial First State Investments Limited AFS Licence 232468, ABN 98 002 348 352 (Colonial First State). Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of interests in FirstChoice Personal Super, FirstChoice Wholesale Personal Super, FirstChoice Pension, FirstChoice Wholesale Pension and FirstChoice Employer Super from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557 and interests in the Rollover & Superannuation Fund and the Personal Pension Plan from the Colonial First State Rollover & Superannuation Fund ABN 88 854 638 840 and interests in the Colonial First State Pooled Superannuation Trust ABN 51 982 884 624.
The presenter does not receive specific payments or commissions for any advice given in this presentation. The presenter, other employees and directors of Colonial First State receive salaries, bonuses and other benefits from it. Colonial First State receives fees for investments in its products. For further detail please read our Financial Services Guide (FSG) available at colonialfirststate.com.au or by contacting our Investor Service Centre on 13 13 36.
All products are issued by Colonial First State Investments Limited. Product Disclosure Statements (PDSs) describing the products are available from Colonial First State. The relevant PDS should be considered before making a decision about any product. Stocks referred to in this presentation are not a recommendation of any securities.
The information is taken from sources which are believed to be accurate but Colonial First State accepts no liability of any kind to any person who relies on the information contained in the presentation.
This presentation is for adviser training purposes only and must not be made available to any client.
This presentation cannot be used or copied in whole or part without our express written consent.
© Colonial First State Investments Limited 2014.
THE NEWNORMAL
THE LANDSCAPEPOLICY AND REGULATORY CHANGE IS NORMAL
2014 2015 2016
Sept 2014FOFA Senate
Inquiry: Report due
Sept 2014PJC advice standards:
Submissions due
Nov 2014FSI: Final Report
Dec 2014Scrutiny of advice
Senate Inquiry: Submission due
Late 2014 Tax White Paper
Terms of reference released
Early 2015FSI: Govt response
July 2015Scrutiny of advice
Senate Inquiry:Report due
Late 2015 Tax White PaperReport Likely
2015-16FSI: Introduce
legislation
2016Federal Election likely to be held
Advice Parliamentary Inquiry
Sept 2014Income stream consultation:
Submissions due
Late 2014 Welfare Review:
Report due
Early 2015Stronger Super:
Reforms finalised
Late 2014 Stronger Super:
Consultation commence
Mid 2015Stronger Super:
Reforms commenced
Financial System Inquiry
Stronger Super
Tax White Paper
Retirement Policy
Other
Oct 2014Govt response to Senate Inquiry
into ASIC
INDUSTRYUNDER PRESSURE
FINANCIAL ADVICECONTINUED SCRUTINY & REFORM
Reform!
Streamlining FOFA legislation • Remove opt-in, best-interests catch-all &
retrospective FDS• Palmer United Party disclosure changes
Performance of ASIC• Public register of all financial advisers• Office of the Whistle-blower • No CBA Royal Commission
Professional, ethical and education standards• Increased education standards, including
possibility of Independent Board
Scrutiny of financial advice• Broad scope, including consumer protection,
conduct and Regulator powers
Parliamentary Inquiry
WHYFSI?
WHY DO WENEED ANOTHER FSI?
Capital allocation and economic implications
Super became a key focus
It’s been almost 20 years since Wallis
SUPERANNUATION FOCUS
Superannuation assets are now over $1.8 trillion* - around six times their level since the last
Financial System Inquiry in 1997
Can superannuation be a greater source of funding for
the economy, including banks?
1997
x6
*As at the end of the June 2014 quarter. Australian Government - Australian Prudential Regulation Authority (2014) Statistics: Quarterly Superannuation Performance (June 2014 interim edition issued on 21 August 2014).
FSI TIMELINE
Aug2014
Nov2014
Jul2014
Mar 2014
Dec 2013
Initial submissions to the Inquiry
1
Second round submissions to the Inquiry
2
Interim report Final report from the FSI Committee due to Treasurer
Financial System Inquiry terms of
reference announced
FSIWEALTH IMPLICATIONS
POST-RETIREMENT KEY OBSERVATIONSAND IMPLICATIONS
Interim Report
POST-RETIREMENT
Implications!
Regulatory incentives to encourage the development and take up of income streams
Greater variety and demand for income stream products
Defaulting into income streams – MyPension?Depending on income stream proposed, may impact level of voluntary contributions to super. Practical difficulties with defaulting.
Compulsory income streams May reduce demand for advice in pre and post-retirement
Government-issued retirement income product May crowd out the private sector and associated innovation
Restrict / tax lump sum withdrawals above a certain threshold
Issue likely to be deferred however lump sum taxes may impact voluntary contributions and trust
Observations or policy options
CONSUMER OUTCOMESKEY OBSERVATIONSAND IMPLICATIONS
Interim Report
CONSUMER OUTCOMES
Implications!
Raise minimum education and competency standards Move towards a profession and greater integrity
Enhanced public register of financial advisersGreater consumer visibility and the chance for advisers to differentiate based on their credentials
Renaming general advice as product or sales information Greater consumer clarity
Clearer distinction between aligned and independent advisers
Greater consumer understanding. Advantages for both models.
Enhancing consumer access to effective, low-cost advice
Facilitate greater use of technology in delivery of advice and disclosure
Enhance ASIC’s powers Greater intervention powers
Observations or policy options
SUPERANNUATION SYSTEM:
KEY OBSERVATIONSAND IMPLICATIONS
EFFICIENCY AND POLICY SETTINGS
Interim Report
SUPERANNUATION SYSTEM: EFFICIENCY AND POLICY SETTINGS
Observations or policy options
Implications!
Super fees are too high when compared internationally
FOFA and Stronger Super and increased fund consolidation will continue to place downward pressure on fees. Auction system for fund selection?
Ban on direct leverage in super and concerns around SMSF operating cost levels
Some members may reconsider direct property. Need for greater trustee education or financial advice.
Is vertical integration reducing competitive pressures and increasing super fees? Are the benefits flowing through to consumers?
Possibility of greater distinction between independent and aligned advisers
Is there an undue short term focus in superannuation and a move to passive investment management?
Move to more homogenous product design, restrictions on asset transfers (extend portability timeframes)?
Statutory compensation scheme Increase moral hazard and impact PI insurance.
REGULATOR’S FUNCTIONS &
KEY OBSERVATIONSAND IMPLICATIONS
CONSUMER PROTECTIONS
Interim Report
REGULATOR’S FUNCTIONS ANDCONSUMER PROTECTIONS
Observations or policy options
Implications!
Industry-funding model for ASIC May result in higher levies, particularly for ‘higher risk’ entities and individuals
Subject product issuers to a range of product design (suitability) requirements
May reduce product innovation given limitation on features and design
Refine the scope of ASIC’s mandate and increase coordination via CoFR
Greater transparency on Regulator activities and decision making
Remove disclosure requirements that have proven ineffective and facilitate new ways of providing information to consumers
Increase consumer engagement and literacy
Accelerate competition between product providers
WHAT’SNEXT?
CONCLUSION
Regulatory change is now business as usual
FSI will have a considerable focus on wealth management given the growth of
superannuation
IFAs are well positioned
THANK YOU