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Not keeping up with the raft of regulatory reform sweeping through the financial services industry? With every sector under scrutiny – everything from advice, through to super and tax on the table – you'd be forgiven for not feeling on top of it all.

Spare a thought then for Assistant Treasurer, The Honourable Josh Frydenberg MP, who finds himself considering what to do next with almost all of these inquiries, recommendation reports and submissions from the financial services industry.

If the FSC’s political breakfast, where Frydenberg spoke this week is any indication, he is well and truly on top of it all.

Below are a few take-outs from his speech, outlining the Government’s stance in the key reforms.

Superannuation

No one would argue against the fact that Superannuation is an important component for our economy, not to mention financial security for an ageing population.
According to ABS statistics the $1.9 trillion assets currently sitting in the super system (more than Australia's gross domestic product) is set to grow to $9 trillion by 2040.

So what does the Government want to see from this mammoth sector of the industry?

There are three areas in particular which the Government wants to see take centre stage; governance, transparency and competition. This comes for the Financial Systems Inquiry (FSI), which suggested several areas of focus within super that require reform.

Frydenberg noted the Government's commitment to improving governance in super, pointing to the importance of ensuring there is an appropriate number of independent directors on superannuation fund boards. The aim is to draw new skills and perspectives to improve decision making for the benefit of consumers.

On transparency, he stressed the importance for consumers to easily compare the relative performance of super funds, enabling them to make better decisions about the right fund for them. How exactly the Government plans to do this is yet to be determined, but at least it's on the agenda.

Increasing competition within superannuation, specifically the default market (where 80% of consumers end up), is another area the Government is keen to address. It's interesting to note that while the superannuation pool has grown significantly over the past 30 years, fees have also increased. Logically, one would expect economies of scale to naturally drive fees down but Australians are yet to receive this benefit.

Frydenberg stressed the Government's commitment to opening up the default superannuation market to increase competition, saying “More competition means there is more pressure on funds to gain business and be more efficient. This puts downward pressure on fees, and can lead to better outcomes for consumers.”

Financial Advice

Without a doubt, the financial advice is a sector has received much attention over the past 18 months and not for positive reasons. Public confidence in the sector has been rocked by several high-profile scandals which have caused irrefutable damage to the reputation of the industry.

Nonetheless, quality financial advice can make a profound impact on the financial future of Australians, which is why the Government has strived hard to settle the much debated and constantly changing FoFA reforms. Fixing the systemic problems within the sector is not an easy task but Frydenberg confirmed that the reforms are settled and the Government is not seeking to re-legislate previous differences of opinion.

He is set, however, on lifting the professional standards of advisers. Both the FSI and the Parliamentary Joint Committee on Corporations (PJC) found that the current regulatory arrangements on professional standards are not sufficient. The Government is in the process of developing an enduring framework that will raise the professional, ethical and educational standards of advisers. It will seek to develop this framework through a co-regulatory model, in conjunction with industry, professional associations and academia.

Life Insurance

Frydenberg also touched on the hot topic of the moment, the Trowbridge Report (the Report). The Report, which criticised the quality of advice in the life insurance sector and reviewed the remuneration structures of advisers, has left many in the life sector reeling. In particular, many feel it's not yet clear what the unintended consequences of the recommendations will be.

Frydenberg had a clear message to the industry as they contemplate the report; appropriate reform must be made within weeks (not months!) and must be led by industry itself. He went on to say that while the Government will be a willing reform partner with the industry – provided the industry is prepared to adopt genuine solutions to the issues identified by the Report – the extent to which it will intervene will depend on the industry’s own actions.

Financial Systems Inquiry

The biggest inquiry into our financial services industry since the Wallis Report in 1997, the FSI, has been a key component in highlighting the issues impeding our financial system.

With the final report in, along with the near 180 submissions in response to the report, the Government is now in the process of review.

Regardless of the final outcomes, set to be revealed later in the year, Frydenberg said consumer protection was a key goal. A balanced approach that benefits consumers while also allowing the industry to adapt in a measured and sustainable way is imperative.

Head in a spin? Well there is certainly ample food for thought for the entire financial services industry in terms of what we might look like and how we will operate in years to come. It's clear reform is needed – the shape in which that reform takes is yet to be seen.

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