The election will soon be over and thoughts will turn to what will be the regulatory reform agenda of the next government. Big mistake.
Whatever awaits us along the regulatory road, super funds, asset consultants and investment managers should forget about it. We have a much bigger problem that if it isn’t fixed fast it will explode into a crisis.
Sounding the alarm bells has been the grim reality that over the past decade all we could deliver to our members – the nation – is average returns that hardly beat the government bond rate. Not bad for an industry that vacuums up $40 billion a year in government subsidies and fees.
If you want to know why huge numbers of Australians think we are about as useful as ashtrays on a motorbike and why the election has passed us by, this is it.
Poor returns is our number one problem because it is what made people so upset that they launched their attack on conflicts of interest, fees and governance standards. It’s why, depending on the election result, the super industry will be squarely in the government’s sights through the recommendations of the Cooper Report.
The performance outcome is so disappointing that governments, business and community leaders and regulators must be wondering what on earth the tens of thousands of us who work for super funds, investment managers, asset consultants and financial advisory networks do all day.
This doesn’t mean our industry hasn’t been busy because we’ve been hard at the wheel inventing investment products, devising clever diversification strategies, and crafting investment and pricing models so complex you need a PhD to read their titles. If only this activity could lead to some demonstrable productivity and public benefits.
The blowtorch gets even hotter when we realise that equities is still the overwhelming lead performance indicator for super fund returns, meaning our diversification strategies have been a catastrophic failure.
Many of us will retort that it’s unfair to blame us for the impacts of the GFC. Fair point.
But imagine what would happen to a coach of even a junior sporting team who sent players onto the field with such a game plan and one that had no defensive strategies, no plan B? They’d need an armed guard to escape to their car and leave the sporting grounds.
So trumpet the best bunch of highly sophisticated excuses about the GFC as much as we like, but scoreboards don’t lie. Winners are grinners and losers can suit themselves.
We can relax that the superannuation system is too important for Australia to now be unwound but we also have to ask whether we are really a savings industry or are we a value-adding investment industry.
If the latter, then we need to urgently start showing off our firepower. If the former, then it’s time to get serious about improving our efficiency. And I mean really serious, top to bottom. Ideally we should be aiming to do both, but one step at a time.
The irony in all this is that this is precisely the point Jeremy Cooper makes throughout his report, which might be why no one has been able to land a glove on it. Indeed, the longer the report ferments, the better it gets.
