After a damning report card by the Royal Commission, the big question is where to now for retail superannuation and its advisory network ecosystem?
At least we know what's not part of the answer: the status quo.
Retail superannuation may not be going backwards, but it's losing the growth war to not-for-profit funds so badly that it may as well be. And before it thinks SMSFs are its escape route, that sector is fast losing its premier mantle too.
As for retail superannuation's regular business model, what wasn't already broken before, today the RC has taken to with a baseball bat.
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Super fund trustee conflicts of interest will be handled by laws tightened to ensure trustees will be expected to do their job of looking out for members and nothing but that job. Retail trustees that try to combine their job with that of sales-feeding funnels for associated wealth management groups will be shown the door. Or they been pursued in the courts.
Put another way, the retail trustee model has been ridiculed by the RC and it needs a rapid reinvention to recover its credibility.
The financial advisers many retail wealth groups may have seen as their sales agents are also in the Royal Commission's gunsights. Their sales commissions and grandfathered sales commissions are gone (or will be in 18 months), 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.
AFSLs will meanwhile be unable to shuffle dodgy financial advisers between each other and their disclosure will be stiffened through improved conflicts of interest declarations and enhanced disclosures to regulators.
The exodus of financial advisers from the big six groups (big four banks + AMP + IOOF) should now step up a gear. In just the past two years the share of advisers in boutique non-aligned advice groups has jumped one third from 30% to 40%. Illustrating this, AMP is losing 20 financial advisers a month.
Mild mannered regulators have been targeted too by being called out for 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 on those embarrassing Enforceable Undertakings.
Pulling all this together means that superannuation groups that source most of their inflows from their tied and aligned advisers are in deep strategic trouble.
By implication, this means superannuation's default product disposition is to now become direct distribution supported possibly by properly independent arms-length professional advice delivered by properly qualified experts (FASEA's adviser education reforms can't come into effect fast enough to enable this to happen).
While all this may appear to vindicate the direct distribution business models of not-for-profit super funds, it didn't all go their way. Indeed the RC's recommendations for Australian workers to have a single default fund will be viewed by weaker industry funds as a savage blow. So too will the proposed limitations on using MySuper account balances to pay for advice and 'treating' employers.
As a result of the RC's recommendations many retail groups and industry funds without a life beyond their award deal will be reviewing their superannuation value propositions. In response we should see electrified activity in managed accounts, robo-advice and anything digital.
The decision by several big wealth groups to divest their distribution has thus been vindicated. The only proviso is whether the remaining core of these groups can turn themselves into builders and assemblers of quality directly distributed products that can stand on their two feet quickly enough.