Super and the royal commission: what you need to know
After the royal commission's damning report card, a big question has to be, "Where to now for retail superannuation?"
At least we know what's not part of the answer: the status quo. Retail super may not be going backwards in absolute terms but it's losing the growth and contributions war so badly to not-for-profit funds it may as well be. And before it thinks self-managed funds are an escape route, that sector is fast losing its premier mantle too.
As for retail super's regular business model, what wasn't already broken the royal commission has since taken to with a baseball bat.
Conflicts of interest will be handled by laws being tightened to ensure trustees of super funds will be expected to do their job of looking out for their members - and nothing but that job. Retail trustees that try to combine their trustee job with that of being a sales rep for their associated wealth management group might soon be shown the inside walls of a prison cell.
Put another way, the retail trustee model needs to recover its credibility and reinvent itself fast.
The financial advisers that many retail wealth groups may have previously seen as their sales agents are also in the royal commission's gun sights. Their sales commissions and "grandfathered" sales commissions are gone (or will be in two years) and fees for no service will be stamped out by the elimination of those vague multi-year service agreements that have been found to be sales commissions by another name.
Advisory firms will, meanwhile, be unable to shuffle dodgy advisers between themselves and their disclosure will be stiffened through improved conflict of interest declarations and enhanced disclosures to regulators.
The exodus of financial advisers from the "big six" group (the big four banks, AMP and IOOF) should now step up a gear from its already hyper rate. In just the past two years the share of advisers in boutique non-aligned advice groups has jumped a third from 30% to 40%. Illustrating this, AMP is losing 20 financial advisers a month.
Limp-wristed regulators have been targeted too by being called out for their weak-kneed enforcement and the recommendation that they be subject to more oversight. The push for more court prosecutions should also hopefully spell the end of those embarrassingly timid "enforceable undertakings". Commonwealth Financial Planning found this out the hard way.
All this together means superannuation groups that source most of their business from their tied and aligned advisers are in deep strategic trouble.
By implication, this means super's default product disposition is to now become direct distribution supported possibly by independent, arm's-length professional advice delivered by properly qualified experts.
So expect a blurring of retail super into what are, in effect, commercial industry funds while high-touch, high-choice retail heads down the platform route, showcasing its technology edge.
Advisers who are poorly qualified and who see themselves as relationship soft-skill specialists - that is, sales distributors for their financial services licence - should as a result fast-track their industry exit strategies.
While all this may appear to vindicate the direct-distribution business models of not-for-profit super funds, that segment took some big hits as well. They include the recommendation for workers to have a single default fund, proposed limitations on using MySuper account balances to pay for advice and prohibitions on funds entertaining employers with members' money.
As a result of the recommendations, many retail groups and industry funds without a life beyond their industrial award deal will be reviewing their value propositions. Whether these groups can make the necessary changes fast enough is the $2.7 trillion question.