David Whiteley, Executive Manager of Industry Super Network (ISN), outlined his views on the current challenges facing superannuation and proposed some potential policy responses in his address to a superannuation governance forum in Sydney.

Mr Whiteley argued that superannuation must play a central role in any policy response to the current financial crisis.

He emphasised that industry super funds see superannuation differently to most retail super funds. For industry super funds, superannuation is not just a financial service, but a central element of Australian social and economic policy.

One of the most profound outcomes of the global financial crisis is the call from governments and economists for radical change in the way financial institutions operate. Mr Whiteley argued that any superannuation policy reform must address three pressing issues:

• The need for all working Australians to have access to financial advice and how this can be achieved;
• The need for reform of the advice system to remove embedded conflicts of interest; and
• The importance of super funds investing in nation building infrastructure.

Simple super advice

In the current economic crisis it is likely that more Australians will seek financial advice about their superannuation savings.

ISN has been advocating for modifications to the current advice framework to enable super funds to provide simple super advice. Industry funds support the work of ASIC and Treasury, through the Financial Services Working Group, to improve access to simple super advice without weakening consumer protection measures currently in place.

ISN’s objective is to make it possible for personal financial advice to be available to all consumers, irrespective of their income or asset base.

Reform of financial advice system

Given the compulsory nature of superannuation Mr Whiteley also argued that all industry participants should have an obligation to act in the best interests of consumers. In particular he suggested that the fiduciary obligation of super fund trustees should be extended to planners in the form of a ‘best interests’ test.

While most financial advisers are well intentioned and skilled, Mr Whiteley argued that the system within which they operate prevents them from providing impartial advice which is in the best interests of their clients.

A definition of a 'best interests' obligation would require advisers to:

• Base their advice on the client’s best interests;
• Ensure that their own interests do not conflict with the client’s interest;
• Receive fair time-based remuneration for services provided; and
• Be measured against a standard of reasonable skill, care and diligence to be expected of an ordinary prudent person acting in the capacity of a qualified adviser.

This would bring the standards expected of financial advisers into line with what is expected of fund trustees and other professionals such as lawyers and doctors.

Superannuation and infrastructure investment

Superannuation fund investments in infrastructure and unlisted property have been the subject of some recent media attention. Industry super funds have always pursued investments in infrastructure and property as part of their commitment to deliver a well managed, diversified investment strategy which maximises long term returns. Many unlisted assets have stable long-term revenue streams generated by Government involvement in the asset.