Wealth Management CEOs call for certainty

4 August 2011

A survey of CEOs from Australia's 31 leading wealth management companies has found they are frustrated by the uncertainty regarding the Government's regulatory change agenda.

The report released today by the Financial Services Council and PwC found the CEOs' biggest challenge over the next five years would be the volume and scale of the proposed reforms to superannuation and financial advice.

The Financial Services Council / PwC CEO Report 2011 also found CEOs were concerned some of the changes could have unintended consequences for consumers, such as increasing the cost of financial advice and worsening Australia's underinsurance problem.

John Brogden, CEO of the Financial Services Council, said CEOs needed the Government to finalise its reforms to provide certainty for business and assist in restoring investor confidence.

"The financial services industry has been living with uncertainty around regulation for the best part of three years," Mr Brogden said.

"As the largest industry in the Australian economy, we need to get on with what we do, which is generating wealth for and managing the savings of all Australians and protecting their incomes and lives."

Andrew Wilson, Asset Management Leader, PwC said restoring investor confidence and trust in the wake of ongoing market volatility and uncertainty would be key to the industry's long-term success.

"The wealth management industry has undergone a challenging period where confidence in the value of financial advice needs to be re-established," Mr Wilson said.

"CEOs are aware of the enormous trust placed in them to manage the retirement savings of Australians. They are responding by improving their focus on client service and working to deliver the right outcomes for their stakeholders."

The survey also captured CEOs' views on issues such as national savings, infrastructure and the industry's growing presence in Asia.

National savings

Only 15 per cent of CEOs have confidence in Australia's approach to addressing the challenges of an ageing population. This is a significant decline from 2010, where nearly half (44 per cent) were confident.

"Australia's retirement savings gap has blown out to almost $900 billion. This remains one of the central policy challenges facing the nation and is one which must be addressed if all Australians are to enjoy a comfortable retirement," Mr Brogden said.

Mr Wilson said the longevity risks posed by Australia's ageing population presented immediate challenges for the industry.

The industry understands there is not a single solution and will implement a range of measures, including developing longevity products, working to lift the Superannuation Guarantee to 12 per cent and providing more incentives for people to save for their retirement," Mr Wilson said.

Infrastructure

Seven out of 10 CEOs said there was a need for the industry to invest more in infrastructure. However, such investments needed to deliver a suitable risk adjusted return for investors before this could occur.

Nearly all (95 per cent) believe the measures relating to infrastructure in the Federal Budget do not go far enough to encouraging investment.

Mr Wilson said: "Australia has a clear need for significant infrastructure development with $770 billion required to fund shortfalls in economic and social infrastructure nationally.

"The long-term nature of infrastructure is appealing to superannuation funds however it is the associated complexity and risks that are barriers to the industry playing a greater role in its development."

CEOs also believe mandating super funds to invest in infrastructure could conflict with their fiduciary responsibilities.

"Superannuation is not a cash cow for Australia's economic ills. However, superannuation funds do invest in infrastructure and will continue to do so where it delivers an appropriate risk weighted return for the investor," Mr Brogden said.

Asia

Eight out of 10 CEOs believe Asia will provide an important source of growth for Australia's financial services industry.

Nearly all (94 per cent) support the development of an ‘Asia Region Funds Passport' to improve access to regional capital. Other activities that were canvassed included partnering with or acquiring Asian firms, establishing distribution and sales channels and entering into sub-advisory relationships.

Mr Wilson said: "With only one in six people in Asia covered by a pension scheme and a thriving middle class that will soon demand a more sophisticated financial system, the region's capacity for growth is strong.

"Australia's deep expertise across the entire asset management supply chain provides us with a strong competitive advantage to capitalise on this significant opportunity."

Mr Brogden said Australian superannuation funds and investors would benefit significantly from accessing a wider range of investment opportunities in Asia.

"We are therefore encouraged by the Australian Government's introduction of an interim Investment Management Regime, reduction in withholding taxes and the inclusion of the Asia Region Funds Passport on the APEC agenda last year," Mr Brogden said.

About PwC

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See pwc.com for more information.

"PwC" is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.