Without a hint of irony in his voice, Investment and Financial Services Association (IFSA) chief Richard Gilbert has declared the past year one of the hardest of his career.
"This has been a tough year. The last 12 months have been the toughest that I've had in the 12 years I've been with IFSA," Gilbert says.
For those thrust into the turmoil of the global financial crisis it is easy to empathise with Gilbert's comments.
In the past 12 to 18 months the Australian economy has battled intense financial pressure from all sides.
Whether it has been the flow-on effects from offshore economic disasters or the crumbling of domestic bastions, the scattering of debris has been far reaching.
Working Australians have felt the sting of share markets in their retirement back pocket with market declines wreaking havoc with their superannuation accounts.
Industry challenges
On 1 July 2009, superannuation researcher SuperRatings made the claim that Australian superannuation funds have experienced their worst financial year performance since the introduction of compulsory superannuation in 1992.
The latest data from the Australian Prudential Regulation Authority (APRA) shows total estimated assets fell over the March quarter 2009 by $14.9 billion, or 1.4 per cent, to $1.03 trillion.
APRA's figures for the March quarter showed industry funds' assets fell by 1.4 per cent ($2.6 billion) to $180 billion.
Retail funds' assets fell by 2.6 per cent ($7.8 billion) to $285.6 billion, corporate funds' assets declined by 2.9 per cent ($1.6 billion) to $52 billion and public sector funds' assets fell by 3.2 per cent ($4.7 billion) to $144.7 billion.
Contributions to funds with at least $50 million in assets over the March quarter were $17.3 billion, with employers contributing $14.3 billion and members contributing $2.8 billion. Other contributions, including spouse contributions and government co-contributions, totalled $198 million.
Retail funds received 34.1 per cent ($5.9 billion) of total contributions, while industry funds received 32.4 per cent ($5.6 billion), public sector funds 27.1 per cent ($4.7 billion) and corporate funds 6.5 per cent ($1.1 billion).
While stemming investor fear over declining superannuation money would seem a mammoth task on its own, the domino effect of struggling global markets has knocked about a number of related sectors.
"The market downturn has really savagely hit confidence and that has led to questions from virtually all quarters about the way the system works. I believe it has impacted the budget and the ability for industries to deliver a good outcome for super people in the budget," Gilbert says.
"It has impacted the progress towards getting adequacy and so the industry has a massive challenge going forward, but it's not beyond us."
Battered confidence in the wake of the global financial crisis is a sentiment echoed by Association of Superannuation Funds of Australia (ASFA) chief Pauline Vamos.
"It has also knocked people's confidence around and what the industry challenge is to make sure people understand, one, that they are retired a long time and that they still need to invest in retirement, but two, Australia's superannuation industry rests in the stock market, which is actually Australian businesses," Vamos says.
She says investors need to embrace and understand that as the economy recovers and the global recession recedes, the value of Australian businesses will increase.
"An important thing to remember is that . we need to ensure people understand that their money is not lost," she says.
"The majority of people understand it's a waiting game, that it's important to be in the market and nobody can predict when the market will go back up. So those nearing retirement are looking at alternate strategies and that's why we pushed the government to reduce the amount you had to withdraw from your allocated pension.
"So retirees today will go on the pension for a little while, but will go back off again when their investments start to recover, and that's the role of the pension as that first pillar."
For the more specialist self-managed superannuation funds (SMSF) sector, the global financial nightmare has had a mixed effect.
"The GFC (global financial crisis) has had some effect on some; it hasn't had any effect on others," Self-Managed Super Fund Professionals' Association of Australia (SPAA) chief executive Andrea Slattery says.
"The main areas that it has affected are the ones close to retirement and the ones who perhaps have balances of around $200,000 to $400,000 in their SMSF or in any superannuation fund. So a lot of the measures that have been brought in will directly affect those people."
Slattery says in light of poor markets, the SMSF sector needs to embrace its professionalism now more than ever.
"The more professional our industry is, the better integrity there is in the long term and that means a better result and better decision making as people are better informed," she says.
"We feel quite strongly that people should be professional and this is a very complex area and people need to be specialised.
"We would very much like to see auditors having a registration and we would very much like to see people becoming specialists and achieving their own professional high level of education and high level of knowledge and skills."
For Australia's retail advice industry, investor confidence is one of a handful of major challenges the sector has been confronted with this year.
In January, Australia's advice sector experienced a brutal wake-up call.
A seemingly benign advisory firm called Storm Financial created shockwaves across the industry when on 15 January it was placed into voluntary administration over issues relating to its margin loans. Two months later on 26 March the firm was placed into liquidation.
The flow-on effect of the firm's collapse has had dire consequences for not just the firm's clients, but the banks and mortgage lenders linked to the group.
Late last month, Commonwealth Bank of Australia (CBA) admitted limited fault over the involvement of its lending division, Colonial Geared Investments, with Storm.
On 25 June, Bank of Queensland informed the market the banking group is the subject of a specific ASIC investigation over the bank's involvement with Storm.
Less than six months after Storm's failure, the advice industry stumbled over another large hurdle. On 23 April, administrator KordaMentha was appointed as voluntary administrator to agribusiness firm Timbercorp.
On 16 May, Timbercorp's major rival, Great Southern, also slipped into administration.
Two days later on 18 May, corporate recovery firm McGrathNicol was appointed receiver and manager of the firm.
On 29 June, Timbercorp's fate was sealed when at the firm's second creditors' meeting it was decided by unanimous vote that all of the firm's 41 companies be placed in liquidation.
The fallout
The fallout from these corporate collapses not only failed to revive investor confidence, but it continued the collective negative brandishing of financial advisers as crooks, scoundrels and thieves.
"The biggest challenge is forging ahead as a profession, but dealing with issues like Storm and other corporate collapses or failures in our professional model," FPA chief executive Jo-Anne Bloch says.
"So on the one hand we are still a young profession, forging ahead and we're doing a lot to reshape that to lift the bar and raise the standards, and then on the other hand you've got what the community sees as failings.
"And you're trying to manage that all the time and putting it out there that the failings are invariably limited, contained, isolated and not a blight on the entire profession, but the community doesn't see it that way."
Fellow advice association, the Association of Financial Advisers (AFA), has found the past 12 months a very trying time, according to its chief, Richard Klipin.
"When bull markets are running and everything is good, there are things an association needs to do, but in times of stress it's when associations need to stand strong and represent their members' interest," Klipin says.
"Obviously there are all sorts of challenges that have been taking place over the last 12 to 18 months. We've had the change of government at the end of 2007 and quite clearly the Labor Party has had a clear mandate to do all sorts of things, and as it was the case with superannuation, it predominantly meant the superannuation review.
"I think the challenge for all of us in association land is to increase the reach to all advisers. The percentage of affiliation in Australia is still far too low and advisers need to vote with their feet and get involved and see that associations are relevant to their future."
Fee debate
The past 18 months has also reopened the debate over commissions versus fees. While this debate has been raging since the birth of Australia's financial services market, the past six months has seen much industry action.
On 1 May, the FPA released a remuneration paper recommending that, from 2012, fee-based remuneration becomes the standard model for financial planning advice.
Bloch says the remuneration paper is part of the association's plan to restore trust.
"If we want to progress ahead, if we want a profession, if we want clients, if we want the seven out of 10 Australians to get advice, we need to do some fairly major things in terms of trust, confidence and some of the inherent issues that we have to deal with," she says.
"I think many of our members absolutely get that and are fully onboard and want to be treated as professional financial planners. They want their reputation maintained and they don't want to be sullied.
"Those members who are upset with the FPA about remuneration likewise also want their reputation intact and they want their income streams and they certainly want to protect the businesses that they've built up, but for them giving anything up is not that easy. And I understand that, the FPA understands that. We have to convince them we are doing this for the future of the profession. Hedging your bets between associations or hedging your bets between systems isn't the issue."
The key issue is about restoring trust across the entire industry, she says.
"We all need to do whatever we can to move forward. For those of our members who aren't convinced it tends to be mainly around remuneration," she says.
"We've had very good feedback on our client-first principles, our ethics, rules, our practice standards, our frameworks, our conduct review commission, our education, professional development.
"There has been very little said about those aspects. Remuneration goes to the heart of how people are paid and how their businesses are viable, and I would say that a lot of the complaints are coming from people who are looking to retire in the next five years to 10 years and so I think there is an age issue."
Klipin does not share the FPA's view.
The AFA has been extremely vocal in opposition to the FPA's proposed remuneration paper, going as far as claiming the FPA was not focused on representing the interests of its members.
"We don't set out to set up in opposition to the FPA for its own sake. The AFA as an association is by advisers for advisers. Our board is made up of only advisers who represent that aggregate voice," he says.
"We will speak out on issues that we think are important and have relevance to our members, and we think, as we've said publicly many times, the issues around fees is an issue about choice and FSR (financial services reform) protects consumers."
Essentially for Klipin, the AFA believes that just by adopting a fee-for-services model it will not suddenly lead to advisers delivering better advice.
"There are some fantastic advisers who run models whether its fees, commissions or a mix. There are a lot of components that go into successful advice models: it's the skill of the adviser, it's the model they offer, it's the staff they have, it's the products they have access to," he says.
"This sense that fee-for-service is a silver bullet is a misnomer. It plays well in the media, but I think we need to move on beyond this and talk about how to deliver good and appropriate advice every time.
"And let's now take in the battle of public opinion, the debate to the consumers and that is let's talk about the good things that advisers do and have done for many years in protecting and building and managing the wealth of their clients."
On 17 June, IFSA entered the fee debate announcing its own charter that entails a new approach to the payment for financial advice in superannuation.
For Bloch, IFSA's charter sits nicely alongside the FPA's proposed changes to adviser fees.
"What IFSA and the FPA are saying is that the industry should self-regulate on the issue of remuneration," she says.
"If we can adopt models that work with our various members and achieve the confidence that the community, the government, the clients are looking for, then I don't see why the government should regulate.
"Of course, if we don't come to any conclusion or if we continue to try and avoid moving ahead, then I think ASIC and the government are making their position clear ... so I think that's the chain of events that we need to understand."
IFSA's new super charter drives home an issue ASFA has been pushing for years: the need for transparency, according to Vamos.
"I think what the IFSA charter does is drive what we've all been driving for quite some time and that's transparency," she says.
"Transparency to fund members about what they are actually paying for is absolutely vital; transparency for fund members so that they can compare one fund against the other, one investment portfolio against the other, absolutely vital, and it's great to see.
"What we need to target here and what our aim is is to meet fund members' expectations and the average fund member wants to retire on at least 70 per cent of their pre-retirement income. That's what we've got to achieve and that's what the current system isn't doing at the moment."
Gilbert believes it's time for the financial services industry to stop being divided on issues and 'sing off the same hymn sheet'.
"I believe that with our big announcement on commissions we really need to forget about the static and get on with the main game and start giving Canberra a very strong message," he says.
"I mean the messages coming out of Canberra and in the budget and the Henry report have been very disappointing and the industry needs to address them squarely because this is about people's futures we're talking and right now super needs injections of confidence from Canberra, not messages of regret."
Industry reviews
Canberra has offered the financial services industry quite an impressive mouthpiece this year. Amid the turmoil of collapses, a number of inquiries were established to find the root of the industry's woes.
On 14 February 2008, the Senate agreed to a resolution from the House of Representatives to establish the Parliamentary Joint Committee (PJC) on Corporations and Financial Services.
On 25 February 2009, the PJC resolved to inquire into the issues associated with recent financial product and services provider collapses, such as Storm Financial and Opes Prime.
The committee has now expanded its inquiries to include a separate hearing into Australia's agribusiness managed investment schemes.
"I think all these reviews give associations like the AFA an opportunity to really talk about the value and the role of advice and advisers and to get rid of the misnomer that advisers don't do the right thing by their clients, because for the most and in the main, advisers do fantastic things for their clients," Klipin says.
For Gilbert, the plethora of reviews peppering the industry is not a great surprise.
"Coming out of the global financial difficulties, it was always expected there would be reviews," he says.
"The unfortunate Storm episode, the agricultural schemes, one of the things we have to realise is that we represent the mainstream of the industry and essentially our members are not part of our reviews. We will be making submissions but we are not part of the reviews."
As well as the PJC inquiries, Gilbert also has a keen focus on former ASIC deputy chairman Jeremy Cooper's review of superannuation.
"I think getting the Cooper review up and going is a good thing because we can go and contest our views there where there are problems," he says.
"But I'm the first to say that the Cooper review has got some critical issues, but I think us coming out on the remuneration decision, it makes for a much more constructive review.
"I'm not saying that we've done the job for them, but at the end of the day, what that review needed was an unholy fight around remuneration of advisers. So we've made their job a lot easier."
Budget 2009
For Slattery, there were a lot of things touted for this year's budget, and a lot of things that did not happen.
"They were going to have a new tax rate at a higher level that didn't come in, there was going to be a removal to the transition-to-retirement rule which didn't come in. There was going to be significant attack on salary sacrificing rules whereas in actual fact they were really only affected by the concessional capping cuts," she says.
"So those sorts of things I think we had a direct impact on because we're dealing with the upper echelons of the market. So there were a lot of things that didn't happen that were good because people understood that perhaps they shouldn't have happened."
While Slattery was pleased by the end result of the budget, she acknowledges the main challenge for SPAA, alongside the lack of trust from investors, is trying to encourage government to understand the strength of the SMSF market.
"There is a lot of information that has been targeted at it [the SMSF market] that hasn't been either factually true or appropriate, so getting the message out about the industry and getting the right people who are making the right policy decisions has been a real challenge, and I think we've been quite successful at it but it's still a big challenge," she says.
"We've been able to put the proposal to a lot of the government and policy makers and regulators that the SMSF sector has an average fund balance of around about $850,000 and average member balance of around half, so $424,000, whereas you've got an average industry fund balance of between $6000 and $8000 and an average balance of the corporate and retail sectors of between $35,000 and $85,000."
In Vamos's mind, the government has to provide a few things and also take away a few things from the industry, particularly as a result of the federal budget.
"The relaxation around annuities was a welcome relief, the confirmation of the extension of the capital gains tax loss relief was extended and expanded so that was very welcome," she says.
"The other one was the confirmation that superannuation funds can invest both directly and indirectly through managed investments schemes into property and that the tax treatment would be the same. So those confirmations provided certainty, which the industry needs.
"The reduction in caps we're hoping that is temporary as well because the system is maturing but not fully mature and most people who were putting in amounts up to $50,000 still only have account balances of $280,000 and they are close to retirement and they need to play catch up."
Gilbert says the budget was good in some ways, particular in regards to the tax regime, although the outgoing chief acknowledges it has been a tough year all round.
"It's been a tough time for the government, the global financial crisis has 'tsunamied' them, but we never felt the door was locked. The door was always open," he says.
It is astonishing that so much has occurred in only 12 months. As Australia's financial services industry braces for change, it is only hoped that, unlike the scores of collapses, the industry associations hold firm.
