19 February 2014
Transcript - #2014, 2014

SMSF Professionals’ Association of Australia National Conference Q&A

ANDREA SLATTERY

Just as an opening question, you've been in the chair since September, how does it feel?

ARTHUR SINODINOS

Look it feels good to be in Government and be in a position where you can make decisions and make a difference, but with it also comes a pretty big responsibility. So you can't just sit down at the desk and say look today I'm going to do X, Y or Z.

You first of all have to take into account what's happened in the past, you have to take into account that you're dealing often, and particularly in this area, with people who've been in the sector a long time, there's long corporate memory, there is a long history of how things have happened. You have to appreciate that.

As a Government coming in you have your own election commitments and priority is to implement them and then, but while doing that, also to deal with urgent and unavoidable matters which had been left hanging from the previous Government. So the art of government early on is how you balance getting on with your own agenda while dealing with the unfinished agenda that's already out there.

One of the things that Joe Hockey and I did early on was to deal with about 92 announced but unenacted tax and superannuation measures. What we did there was we felt that before we could go on, we needed to clean the slate where possible. Try and create some certainty for people because obviously when measures have been announced but not enacted there was uncertainty in the minds of many people about what do we do about these taxation measures? Do we observe them? Do we assume they're not going ahead? Do we assume they will go ahead and therefore we should do something about them to observe the law?

So it was important for us to deal with those sorts of measures early on, but my priority has also been to get on with implementing our election commitments and in this space I cover tax, financial services, super and corporate law. And particularly in the financial services and superannuation areas, I was keen to get on with our major commitments.

One was around further amendment of the Future Financial Advice reforms, the so-called FOFA reforms. It was important there to get on with the job of implementing the commitments we'd made in Opposition, which we signalled very clearly, the areas where we wanted to reduce the cost of complying with FOFA, without detracting from the consumer protection that FOFA provides. And I thank Sir Anthony Mason for what he said today, because he provided great clarity around some of those issues, including the issue of the best interest duty.

There's been a lot of urban myth making and mythologising in recent times about some of the changes we were making there and none of the changes that we make there detracts from, as Sir Anthony said, what it in the Common Law and also the provisions that are in the Corporations law around the duty of advisers to act in the interest of their clients. So I am very keen to get on with those changes, that's an important part of my job.

But as I said early on, when it comes to superannuation in particular, I am keen to have a level playing field. Some people said: oh well does this mean you're going to pick and choose what you take away from various sectors have got already in terms of perceived advantages? That wasn't the point of my remark. The point of my remark was to the maximum extent possible we wanted a superannuation system, which is driven by the needs of the members. The members who are in the driver's seat.

And of course self-managed superfunds play a very special role in that regard, because you're catering to people who do want to do things for themselves and providing them with the support to do that. And of course philosophically coming from a centre-right Government with a very strong liberal philosophy, we believe in people taking responsibility and we want to encourage people to take responsibility for themselves. And as many of you will be aware, much of the growth of the self-managed super funds sector, if I may say so, is as a result of changes that were made during the period of the Howard Government of which I was a member.

It's great to see that the sector is expanding and developing. I'm keeping an eye on the sector. Issues come up from time to time. You alluded, before I think, to the properties spruikers and the like. And what we're doing there, is we're not seeking to come in with heavy handed regulation. But we're wanting to make sure everybody understands that when people provide you with advice, including on property they've got to be appropriately licenced, appropriately accredited, so that the customer, the client, is getting the best possible advice in their interest. But it's not about heavy handed regulation when it comes to this sector. Where possible it's about light touch regulation and we like that sort of regime and we think it can work well in this sector, because people want to take responsibility for themselves.

The obverse of that is of course that when things go wrong it's not necessarily the case the Government can or should or would come in to compensate people. And may I say in that regard more broadly when it comes to financial advice there has been a bit of a view around that if you have really tight regulation of financial advice you can somehow prevent another financial collapse occurring. We can't guarantee against another collapse, whether it's as a result of the GFC or something else, or Ford, or all the rest of it. But what we can do is try and have a robust regulatory regime, which encourages the best possible advice being provided and then it's really up to the market from there.

ANDREA SLATTERY

Thank you very much for that and I'm very pleased to hear your statements about a couple of those things. Perhaps if we come, I wouldn't mind coming back to the Financial System Inquiry and a few of the reviews in a second, but perhaps if we just touch on the limited recourse borrowing arrangements, which you just mentioned. SPAA has been advocating that people that provide advice (inaudible) should be licenced for some time. You indicated that you agree that they should be licensed. There is also a review proposed. Is that review still something that you intend to move forward with?

ARTHUR SINODINOS

We're not looking to have a review specifically into limited recourse borrowing. Let me make that quite clear. ASIC is out there advising people that they need to have licenses if they're going to provide advice, including property advice in this space. Now where someone provides advice incidental to their main job, which may be another job, they don't necessarily need to be licensed. But what we're saying is that if people are specialising in this space, they do need a license to give that advice. As far as the limited recourse borrowing is concerned there is no separate review of that or anything else to do with self-managed superfunds underway way.

There is the Financial System Inquiry, which is looking at the overall architecture of the financial system and as part of that it will also look at the role of the superannuation sector, the savings pool now 1.6 trillion, of which self-managed superfunds are about a third. So it's important the Inquiry looks at the sector, how it's developing and the impact it has on the allocation of capital and on savings in Australia generally. But that's looking at the sector through what I'd describe as a systemic lens. It's looking at how each part of the system impacts on the rest of the system, as opposed to having a specific review of either the licencing or the regulation around this sector.

ANDREA SLATTERY

We've been, as you know, working with a number of stakeholders in the industry and what we've been, based on the facts, we've actually found that more than 90 per cent of the current loans in Australia are actually, account for far less than 1 per cent of the current assets held by SMSFs. We will be coming out with more information in the future, but that actually completely goes against what the market and the media and the hype has actually all been about. And the work that we're doing with you in developing those best practice guidelines, hopefully will help you as a Government to have more comfort in that particular area.

So looking at perhaps the other area that you were talking about, which is the Financial System Inquiry, so it wasn't going to be specifically on SMFS, but it was going to be about how capital and how the efficiencies of capital can be used. Some of the work that SPAA is doing is actually looking at research to see the SMSF sector can unlock its capital and have opportunities. There has been a huge interest in that for a long, long time now. What do you envisage the future will look like with the… What output do you think the FSI will come out with and what future do you see for the SMFS sector as part of that?

ARTHUR SINODINOS

Firstly in terms of the Inquiry as a whole, part of the motivation for the Inquiry is to look at how the landscape has changed since the last inquiry in the late 90s, the Wallis Inquiry. And things have changed, not only is super a much bigger part of the system, but we've had the global financial crisis and that led to changes in the amount of capital for example that banks and major financial institutions have to hold.

What's also happened is that technology is disrupting existing business models, including in banking and finance. It's disrupting payments models. It's making it easier for people to do banking type activities through other means. So this raises a couple of issues, first of all, what does the future financial system look like if it's a much more contestable area with a lot of players that come from non-traditional, non-banking sort of backgrounds? What impact does that have on regulation of the sector? How should regulation be modified to reflect that?  Too often regulation is a process of catch up and the thing we have to think about is how regulation is more proactive in the future and also what is the best form of regulation? Because regulation itself can create barriers to entry, which can militate against competition. So how do have regulation, which if you like goes with the grain of market forces, allows you to have a more contestable, more fluid market place?

I think it's important to understand that for us the self-managed superfunds are a sector, which is likely to grow over time. Jeremy Cooper, in the context of his review, a few years ago made the point that he thought that we might reach a stage where everybody in Australia has a self-managed super fund. It's quite an interesting comment to make, but that actually is quite consistent with the aspirations of most Australians.

ANDREA SLATTERY

It's also quite consistent with the objectives with both sides of Government for what super as a primary savings…that each member is looked after. I think that was the context in which he was talking about at the time.

ARTHUR SINODINOS

And than part of what I am also doing with the paper I put out recently for comment around the governance of superannuation funds is how we keep improving their governance, so that increasingly the members are engaged and driving what super funds are doing. I think this is very important. And that governance paper closes for submissions 12 February. We'll now consult on what that means in practice. Some people saw that paper as a bit of an attempt to touch up the industry funds.

My attitude to the industry funds is that they are a respected and legitimate part of the superannuation landscape. So no one is out to do them in or anything else. The dilemma I face as the Minister in this space is that we have all these different business models that intersect and having a one size fits all type of regulation is very difficult in this area. But what I do want to do, where possible, is apply some common principles. One of which is, I think it's in the interest of everybody that there is, for example, more independent directors on superannuation boards and, where possible, members actually drive the process. I don't cop this idea that certain funds are just there to cater for disengaged investors or savers. No one should be disengaged when it comes to their financial future. What we want to build is a citizenry which has access to the lowest cost, best available financial advice and has options, multiple options to choose from because that choice encourages competition and will improve the service offering.

ANDREA SLATTERY

So really what you're talking about is an increase of professionalism across the board. We have such a diverse range of super, we're actually very fortunate within the world to have an opportunity to have such a diverse range that allows things like the GFC to not have been as damaging to us along the journey.

ARTHUR SINODINOS

And we're keen to further increase professionalism when it comes to financial advisers and we're working with ASIC on further initiatives in that regard. Because this industry has sort of grown like topsey the last 10 or 15 years and it is important that, and the various associations I think are trying to do this, but as a Government we also reinforce what they're trying to do and keep raising those standards in the interest of everybody.

ANDREA SLATTERY

Yes, so on that particular point, if we just looked at SPAA's issue at the moment, we have specialist members that have, that are seen and are known to have actually extended themselves far beyond that which is expected of the Government and the minimum standard and I think that's the other thing too, the notice of a minimum standard is the ASIC G146. The opportunity for as SPAA members to be involved in things like a limited licensing exemption…

ARTHUR SINODINOS

The one that applies to accountants…

ANDREA SLATTERY

It only applies to the JAB members because they were the only ones that had the exemption at the time in 2003.

ARTHUR SINODINOS

That's right.

ANDREA SLATTERY

Perhaps we could pop that onto your agenda.

ARTHUR SINODINOS

No, no I'm happy to have a look at that, yes, absolutely.

ANDREA SLATTERY

Good, excellent.

Looking at another thing, there is a few little bits and pieces that we popped into our submission for the upcoming May Budget. One of them was in relation to the Australian super fund definition and the ability for people when they're travel overseas to be able to be able to contribute while they are gone. There is a connection of things that are slightly inequitable for the SMSF sector or have proved to be because of passed legislation and so on. And this is one of them, where if somebody travels overseas, the only way they can contribute is to contribute into a retail or industry funds. So they either have to shut their fund down, not contribute, which affects their retirement savings, or they have to contribute to another fund and then there's the issue of having to role that money out into their fund when they return. Have you addressed that at all?

ARTHUR SINODINOS

I haven't as yet. I am happy to have a look at it. I mean I think the tax office can give you up to two years grace in this regard. And also for people travelling overseas they can provide someone with an enduring power of attorney, which can help in terms of maintaining contributions and the like. But look, I recognise that again this goes back to this issue of one size fits all when it comes to the rules. I'm happy to have a look at that.

But we must always remember that one of the reasons that we have some of those rules around being funds located and administered in Australia and all the rest of it, is of course we are providing certain concessions in Australia. You don't want a situation where you're creating a potential, for want of a better description, overseas wealth accumulation vehicle, you want one that is very much tethered to local conditions. But I am happy to talk to your further about anomalies and inconsistencies in that regard.

ANDREA SLATTERY

Now listen, that's fantastic. I'm getting the wrap up, so I'm going to ask you one last little question, which is if you had one thing to say to everybody here, not only about their advice and about their future and the SMSF sector, what would that piece of advice be?

ARTHUR SINODINOS

Well I want to encourage you to do what you are doing. I think what you're doing is very important, because as I said before, philosophically I like the idea of people being able to manage things for themselves but they need to have access to the best possible professional advice. And for me this area is part of the whole growth area of financial services. It's, as you identified in your remarks earlier, it's a growth area in terms of the economy and very important to how we, not only develop domestically, but as a platform for the export of financial services.

Thirty years of deregulation, 20 or so years of developing the superannuation sector has built a very vibrant financial sector here in Australia and it's got a lot of potential for not only local jobs, but internationally for the export of financial services. So it's a very exciting industry to be in and I encourage you to do what you're doing and I get a lot of energy from coming to events like this and seeing people who are out there doing all of this stuff, working with small business people, working for themselves and trying to create a better Australia, because ultimately it's not governments that create the jobs, it's you people out there and our role is to facilitate that process.

ANDREA SLATTERY

Thank you very much.