On Monday 4 February 2019, Kenneth Hayne’s final report on the Royal Commission into Misconduct into the Banking, Superannuation and Financial Services Industry was released to the public.
We have been hearing the explosive hearings and findings over recent months and have been most confronted with the fact that some of our largest banks, a number of superannuation funds and many advisers have not always deserved our trust or acted in our best interests.
Trust in those organisations and people is vital as all Australians depend on them to support us in saving for retirement. This is particularly important in the superannuation sector because 1. Super is compulsory in Australia and 2. saving for retirement and our ensuring our financial future is one of the most important activities any of us undertake.
No-one forces us to borrow money, take insurance or save via a managed fund. And certainly trust should be earnt and not given automatically or without caution. But The Royal Commission has bought to light that some of the organisations and people we trust to carefully look after our financial future for us are doing more for their own retirement than our own.
So what does this Hayne Report mean to you?
The Hayne Report was released with 76 recommendations for reform of the Financial Services Sector. Since the report has issued two key executives at NAB have resigned. Perhaps a sign of more to come?
The first thing I did when I opened the final report was to search for “SMSF” (Self Managed Superannuation Funds).
Other than the definitions, it appeared twice – once to explain that SMSFs are administered by the ATO and the second time in the context of explaining choice in superannuation.
So is it surprising that the recommendations don’t specifically relate to SMSFs? And that none of the commentary that was so unflattering about our largest financial institutions, their management and their culture touched on SMSFs?
In a nutshell, probably not.
For a start, the terms of reference largely related to the behaviour and regulation of financial services entities, not the superannuation system itself. Perhaps even more relevant, though, SMSFs are in fact almost the thinking person’s response to all the terrible things that were revealed in the Royal Commission hearings.
The great thing about an SMSF is that it empowers individuals to take charge of their own retirement savings journey and make informed choices about the advisers, products and services they use.
Of course, SMSF trustees are not immune from poor advice and many SMSFs use products provided by the financial institutions criticised in the Royal Commission. Some of the recommendations therefore do touch SMSFs and are worthy of further discussion.
In relation to Self Managed Superannuation Funds (SMSFs) we expect that the Hayne recommendations will result in a tightening of rules for borrowing to buy assets in the Fund. Investments promoted for SMSFs in more speculative assets will also be tightened up.
We expect SMSFs to continue to be popular. Ideally SMSFs suit those who have a particular investment and investment strategy in mind. They also suit people with larger Superannuation balances as the costs to maintain and run a SMSF are not charged as a percentage of the balance. Instead they are charged at a more fixed rate.
We also remind you that we have a limited and independently owned AFSL (Australian Financial Services Licence) under a subsidiary entity – McCarthy & Co Advice Pty Ltd. This independent licence which we own allows us to advise about Superannuation. We also have access to a number of fully licensed professionals to suit your investment and finance needs that we like, know and trust and are happy to refer you to.
In relation to the finance industry, we think that the measures to scale back upfront & trail commissions on loans will adversely affect many small business mortgage brokers and financial planners. Perversely some of the Hayne recommendations could result in greater market power for the larger banks at the expense of small business.
Despite all the recent media, please note that at this stage the recommendations of the Report are not law. The Government needs to respond and issue proposed law. The Federal Opposition have stated that they will adopt all recommendations.
We will be sure to keep you posted of all enacted reforms as they occur.