Welcome to that super show, the podcast where we talk all things super from the inside. I'm Neil Benson.

And I'm Sarah Penn, CEO of Mayflower Consulting. Each week we unpack what's changing in the industry, what funds are wrestling with and how tech and regulation are shaping the landscape.

Sometimes we bring in expert guests, but mostly it's just us having a real conversation about how super is working and what could make it even better.

Let's get into it. Hello, Neil, how are. I'm great, Sarah.

It's great to be back with you. How have you been?

I am very well, thank you. Looking forward to recording another episode of that super show with you.

There has been a heap happening in superannuation land.

Oh, my goodness, there has. Treasury seem to have gone slightly bonkers with sending out consultation papers left, right and centre.There's a lot of discussion and thinking at the moment from all sides of the political spectrum, one might say, about how super should be working better. The first one is the ban on advertising in superannuation when someone is joining a new employer specifically.But before we get into that, tell us a bit about what it actually is.

Yeah. Imagine you start a new job and your employer says, got to pick a super fund.Obviously we want the employee to have their existing super fund stapled to their new employer and the employee's contributions should be landing in their stapled super fund. But if they don't have one or we couldn't find one through the ATO stapling system, then we want to present them with a range of options.One of those should be the employer's default fund.And today, depending upon which HR system that employee onboarding experience is delivered through, funds can promote some of their options through those HR systems.And it's fair to say that idea of marketing and promotion of super funds through those joined channels has not been widely accepted as a great idea by everybody in the sector. There's been the past with Host plus and Employment Hero around these kind of things. It's been fascinating to watch.And treasury has stepped in with a consultation paper and proposed some limitations to this, which includes, I think, sir, you're saying it's you can still have your stapled fund, you can still have your default fund, but the choice of other funds is going to be limited to my super products only.

Yes. And even if a fund has lots of other options that would only be allowed to promote their MySuper product and not any of the other options.

Yeah.

I personally think this is a very good idea. One of the issues with the current setup is that good advertising and promo can encourage people to make decisions on the fly.And it's that thing of friction. There's not enough friction. It's very easy for someone to just tick a box.That one looks super fun because it's ESG or it's got low fees, or it's built just for women or it's just for young people or whatever the thing is. And. And it's making it very easy for people to move into super funds that perhaps aren't really in their best interest.And often it's not so much the super fund specifically because all super funds are basically run reasonably well these days. It's more about what investment options and things they end up in and also whether or not they lose insurance as a result of all of this.So I think only being able to promote the MySuper version of a fund or the default or stapling is sensible. One of the other things in the consultation is that those three options would need to be presented equally.So you can't have a big picture for whichever super fund is paying you commission because it's general advice. This is the problem.

Right now.

These onboarding platforms are being paid money by the super funds to find new customers for them. So it is straight up.It's actually lead gen, but it's lead gen at a very specific point when people are more likely to look at things like their super, which is when they change jobs. So it's straight up lead gen. It's not done with the best interests of the member at heart.It is done with the best interests of the fund that is paying the most money at heart.

Yeah, okay, I can see that side of the argument. To be honest, I was a bit more in favor of the ability for funds to market themselves at this point in time than perhaps you were.But you're talking me around. Sarah, I have to admit, I like the cut of your jib.

So long as it's all the big funds, they all have my super products. So the legislation or the proposal is just saying that those have to be put put forward equally, right?

Yep.

So say you currently stapled to Host plus because you got a job at maccas and now you're going for your second job at somewhere else. So you would have in front of you the choice of stay with Host plus join the.The employer's preferred fund, which, let's say it's art, and then maybe one or two or three or whatever other options of other my super products. And they would all be promoted equally and you would have the same sort of information about the different ones.So if you were looking at them to move away from what you were stapled to, you could at least compare the sort of basics at the same time and make some, hopefully make a better decision.

Yeah, I appreciate that.My super products are designed to be way more comparable, easier to compare to each other some of the choice products, so that's probably a good thing.And reflecting back on a conversation with David Bell from Connexus a few episodes ago, then there's this just inherent cost of switching in the industry that is expensive for funds and expensive for members. And. And we don't want people switching willy nilly just because they're caught at a opportune moment, like when you just started a new job.I think it should be in a more considered way and a more rational way with a bit more time, without the pressure of getting through my onboarding. It's like when you start a new job and you just want to get your.Yeah, that's right, your workplace health and safety training all out of the way as soon as possible and you're in a bit of a rush because you won't make sure your payroll's set up. So you tick the boxes and yeah, it's probably not a great time to sit down and have a cup of tea and choose a new super fund.

Yeah. This is the thing. It's an easy time to prize people off their current superannuation rock. But does it mean that's actually a good thing?And I think the answer is no. And I'm very sorry if you work for employment here or one of the other products that makes money out of doing this.But I think to me this falls into the just because you can doesn't mean you should category. That's the short version.

All right, thank you for making your opinions understood. We got it. Tell us how you feel about the consultation then, for changes to the educational requirements for financial advisors.This is part of the DBFO new regulations. Treasury has finally come out and I think we're all waiting for better regulation around guidance and nudges.But the other beetle, what we've got is this new class of financial advisors and a consultation around that. How do you feel about this one?

I think one could reasonably say that the pendulum has swung too far in the opposite direction because we went from literally doing RG146 over a weekend with an open book exam was enough to be able to hang out a shingle and say you're a Financial advisor, which obviously is utterly ludicrous. We've gone to the other end, which is you have to have a.Do a whole new degree and do three years of study and a professional year and to become a financial planner, which one could reasonably say is fine if you're a graduate or you just finished high school and considering what you're doing. But if you're a grown up and you want to move into becoming a financial planner, say you're same as me.So I have a commerce degree majoring in marketing and information management. So not majoring in accounting or finance or economics or something. But you know, I did enough of it early on.At least I've got something to then add on some extra bits to then become a financial planner. So when I was reading this, the consultation, my initial thought was oh, bugger off. We really want people to have done a full degree.If you want to become an accountant or a lawyer or a dentist or a doctor or even a physiotherapist or I'm going to keep going here, it should be a three year degree. It's too important not to be. However, then when I actually read what they're proposing, it doesn't seem too bad.Having said that, I read it this morning so I haven't had a lot of time to digest it, but it didn't seem too bad.It's still keeping most of the work that the additional work that would still be expected or study that would still be expected to be undertaken around the things that make financial planning different to other, other disciplines. And it's more. It looked, it's a bit hard to tell, but it looked like it was probably more like a year's study on top of a relevant degree.

It's not even a relevant degree as far as I can tell.Any bachelor degree or higher and then some financial advice subjects, four financial concepts subjects and four accredited financial advice subjects and then your professional year and blah blah, blah. Instead of having an approved set of bachelor degrees that count, they're saying not any bachelor degree.

Yes. So yeah, I don't know about, I really don't know about the. Any bachelor degree.

I premise. Do you think I can get in at least?

You probably did some numbers.

I did some.

Do you have a bachelor's degree in fashion, design or music or. There are lots of things you can do a bachelor's degree in. I do think the base degree should be relevant at least in some way. Shirley, come on.We don't let people become a doctor based on the fact that they've got an arts degree.

No.

Which is not to say more people shouldn't have arts degrees. That's a whole other argument.

But yeah, I think it's important though that we do enable more pathways for people to become financial advisors and forcing them to go back to university at square one and study a whole different bachelor degree, maybe a second degree if they've already got one in arts. There's too much to ask and it probably closes off a career change for a lot of people who could be very good financial advisors.So I think if they've got any degree where they've proven they can study a topic and learn it and meet a certain standard, go on to.I don't know if it's going to be a year's worth of study to do these other eight modules in financial advice, but proven they've got the chops to provide financial advice and they still got to do their year's worth of professional work. We don't have enough financial advisors, so I do appreciate broadening the net.

Interestingly, if you speak to financial advisors, which I occasionally do, they will tell you that the professional year is actually the biggest problem because it's very hard if you're a one or two man band shop.To pay someone for a full year to absorb their salary while they're still learning is tricky and then often that means the way you have to do it is to pay them more like an apprenticeship salary, which is, I don't know what, some percentage of a full salary.But often at the end of that year what happens is that person then goes and gets a job as a fully fledged financial planner with someone else getting paid lots of money. So you end up turning yourself into a training organisation and your firm actually isn't getting any more financial planners.So it is an interesting thing. Having said that, I think the professional year is absolutely vital to make sure that we have people who are good in the field.So for me, I would rather see more work done around how to make the PY more effective than do too much more on the actual education front.

Yeah, I felt the same in working in IT as well.So we took on graduates or trainees and you give them a couple of years worth of work experience and train them up and get them certified in various things and then as soon as they become productive professionals.

Yeah, you've got to, yeah, exit stage left.

But there was always a risk and all that investment in professional development went stage left with the person who took all the training. Yeah, there's no easy way of handling that, I think.Except to make yourself an employer of choice and a great place to stay once somebody has become professionally qualified.

Yes.Yeah, maybe there's more for that, just thinking about it, but maybe there is more for the industry to do around helping during that professional year, helping people get those other skills that they need to actually be a financially contributing member of the business, because that's actually part of the problem. Right. At the end of year one.They probably don't have that much in the way of network like their sales skills, which is actually a really important part of any advice business, whether it's consulting or engineering or anything.Their sales skills might not actually be up to scratch yet because they probably sat in on a lot of meetings, but maybe they haven't had that much practice. And so it's those skills, like, how do you get them to be over that year?Get someone to the point where they add enough value to the business that they're in, can then pay them properly off the bat so that it all works and they can stay where they are.

Yeah.

So, yeah, I think there's more to be done around the py, but I'll be happy to see a relevant degree being accepted and then some on tick. But not any degree. I think any degree is just stupid.

The treasury consultation is open and listening to your feedback.

Well, they might. If I write something down and send it in, which I might I have before.

I wonder who treasury really wants to listen to when it comes to these kind of consultations. Is it the big industry lobby groups or is it anybody in the industry with a point of view can write in. And are all opinions relevant? I don't know.We're interesting to see how it gets mashed.

Anyone can. Yeah. And absolutely anyone can. They're public on the website. There's instructions for how to. How to put it in.What I've found over the years is what tends to happen is the big groups like fsc, smc, whatever, will put in large and considered submissions that they've worked on with their members. And then various participants in the industry, like big funds, will often also put in their own submission.And then some consultants put in submissions as well. Generally the big consulting firms like Deloitte, ey, those sort of guys, not very much at the small end.Where I have contributed before, it actually has been contributing to, like an FSC submission.

Yeah.

Which I've done multiple times.

Let's. Let's make some more submissions to treasury from podcast hosts.

Excellent.

Very important lobby group.

Let's do it. Maybe they'll listen to us. All right, what have we got next? Oh, speaking of such things, let's talk about the Parliamentary Friends of.

Oh, really? Oh, cringe. I saw this on LinkedIn and then I followed a news article. So, within the House of Representatives, what's this all about?

I've got no idea, but I want to know, can anyone be in the friendship group or do you have to know the secret handshake?

Yeah. Is there anybody who says they're not a friend of Superannuation? Senator Bragg?

Yeah, there's certainly a few. Although he probably would say he was actually.I don't think he's actually anti super, he's just anti the way it currently works at the moment, and anti everyone, because it's fun being anti everyone. There are some small parts of the political spectrum that are anti super, but especially given our current parliamentary spread of people, there's.You wouldn't be fine very many, if any.Anyway, Parliament says the group will give MPs and senators a forum to engage with super funds, peak bodies, members and fund administrators on matters relating to Superannuation. I note they don't mention insurers there.I guess if you're an insurer, you're probably not really thrilled about that, since insurance is actually quite a large part of super, but it's probably just an oversight on the press release.

Yeah. Did those organizations not already have a way of engaging parliamentarians on topics related to Super?I can't imagine we've got 30 years through the system without some kind of representation, but, yeah, maybe it's.

There's Rep. Yeah, there's a lot of representation all the time by the lobbying groups via the big funds, via the Senate Estimates Committees, who are constantly dragging people from the funds in to explain things to them. So there's a hell of a lot of consultation and back and forths already going on. But sure, let's have another one.

Let's have another one coming a lot more seriously. Published a letter to the industry regarding Payday super readiness.This is at the end of March, so we're a couple of weeks into this and we've only really only got, what, two and a half months to go until Payday super becomes official.And there are some concerns from the ATO and APRA around implementation readiness, both in terms of some of the funds and the industry's ability to cope, plus some employers readiness as well. So it's just a. I guess they're rattling the cages just to make sure we're all on board.

Yes, yes, I Think this is one of the times when as people who have spent most of our lives working in large businesses, it's very hard to quite fathom how many small businesses there are in Australia. But actually the majority of adults in Australia work for small businesses, not large ones. Actually it's more than 50%.So the long tail of small employers is certainly a thing that the super funds are going to have to deal with.

You know what struck me the other day, Sarah? I was thinking about the timing of superannuation payments next year.So on the 1st of July, after the 1st of July, my pay will include a superannuation contribution and that will land in my account within seven days. So July there'll be a couple of pay cycles and the money will land in my account, which is great.But for the quarter ending 30th of June, the year before, the payment won't be due to be paid until the 28th of July and that's got seven days to land in the account. There's going to be some overlapping payments.I'm going to get July's first, first couple of pay cycles contributions into my superannuation account before the quarter ending June 30, the year before. It's gonna be slightly strange, but yes, it will be.

And if you earn a good amount of money, you might get close to the contribution cap or go over it.

Yeah.

And if you're one of those people, I would urge you to keep an eye on your ATO via MyGov's the Easiest Way to do it.

Yeah.

See exactly where it's up to.

If that's up to date.

Yep. Yep. Yes. Well, I guess the ATO will have to keep it up to date, won't they, going forward?

Yeah. So there's more pressure on the ATO. Absolutely. To keep MyGov system up to date and so people can check balances there.You talked about stapling earlier and some of the funds have expressed some concern that the stapling system, the ability for a fund to provide a TFN to the ATO and the aid of return details about the members stapled or the taxpayers stapled fund is not that reliable and it fails 20, 30, 40% of the time.There's just a bunch of systems that we rely on the aid to provide and I think the robustness of those needs to be improved if we're all going to be doing things a lot.

Faster, quicker at the moment because super is generally paid quarterly and then maybe you have 20 or 30 fail. It's not that Every single week you're going to have 20 or 30% fail.It's going to be those failures are going to be spread out over the, over the pay runs. So maybe that'll help. Who knows? Bring your popcorn about whatever it is. 7Th of July, let's see what happens.

Yep, exciting times.

It is exciting times. We should talk about something very sensible though which is the super performance test and the, the long term.I'm putting on my sensible supervoice for this.The long term ramifications of pushing super funds to not underperform which means they generally don't outperform and therefore what this means for investment in emerging technology and new ideas in Australia. Neil, over to you.

Interesting article in the Australian Financial Review.Just reflecting on the few years that the performance test has been in place and how has that changed superannuation and I think we've talked before about the pressure on returns really pushes the super sector to look more like just big investment fund managers rather than more holistic pension providers.And the pressure to meet the performance test or try and outperform the performance test pushes most funds into a very conservative index hugging position and we lose that ability to make alternative investments like private equity and venture capital and into the buy to rent sector because there's no reward for investing in more creative ideas.

Yes, look, I do think it's an issue. It's interesting how different jurisdictions handle it.Actually what they've done in the UK is they've told all super funds they have to put X amount into local buildings.I can't remember the exact details but yeah, they've literally overridden their version of the CIS act and said that super funds have to invest a certain amount into new local emerging blah blah blah to push the investment quantity back up. Yeah, I actually, to be honest, the thing about not investing in new and exciting things, I don't actually think it's a super issue at all.I think it's an Australian society societal issue and the way that Australians as a society, the way that we look at risk and I think pointing at the, pointing at the performance test is an easy way actually to, to avoid having to look at the harder, more difficult questions of what, what do we do as a society? We're very good at coming up with new technology. Wi Fi for instance, the Hills hoist obviously.But satellites and various other technologies come out of Australia. Like we've through CSIRO and our universities and things we have come up with some amazing technologies over the years.What we are terrible at is commercializing Those technologies And generally speaking super funds don't want to invest in things until there's a steady flow of income and more to the point profit being generated, which is quite a long way down the track actually for most of these companies.And so it's that gap between ideation and getting to profitability that generally speaking Australian companies generally don't like investing in super funds and anyone else. So there are a number of smaller venture capital funds that do invest into into startups but and then super funds invest into VC funds all the time.Most of them have a actually have a reasonable percentage. 5 To 8% is pretty typical in a. I think she says suddenly thinking when's the last time I saw some stats on that.But I'm pretty sure that's about right. In a MySuper product there is actually alts and VC and all kinds of exciting things happening.But it is a small percentage and I think this is one of those ones where we look at super and think super should be the one to fix the problem. And I don't know that's actually quite the real. I don't think that's really going to get to the underlying issue.

I take a different point of view. I think funds were a bit more bullish on that allocation to private equity and venture capital.They could stimulate a whole lot more of that commercialization of the great ideas that some Australian entrepreneurs have. And this article in the AFR talks about where's our next 8,000 person or 20,000 person company going to come from.We've had great success with Canva and Atlassian and Resmed and Cochlear, but there's just not enough of those. There should be dozens and dozens of Australian examples of innovative technology firms.Not just technology but more broadly innovation In Australia we tend to for example, see those companies do really well and then they list on overseas stock market instead of listing on the asx.I can't really blame them for doing that either but it'd be great if some of that more of that money was kept onshore here in China so we could reinvest into new startups with money generated through IPOs.

So it's interesting you say that and that is definitely the sort of prevailing view.However I have just opened because it was the first one I thought of because I thought of someone who used to work in the investment area of IT Aware super.And I'm just looking at their high growth asset allocation old school high growth would be pretty much 50% Aussie shares, 45% international shares 5, like a couple of percent in property and a bit in cash. So close to half and half.

Yeah.

So aware Super's high growth is 29% Aussie shares, 40% international shares, 7.5% private equity.

Right.

11% Infrastructure, 2% credit income, a tiny bit in liquid alts, 0.5%. But this is of their high growth, which I assume is there or would be close to their. What's in there?MySuper, which has got squillions of dollars in it. Right. So I actually think, and I don't know that you want those percentages to be more aggressive than that.So I actually think that the super funds are doing pretty much the right thing and I know that they do invest into huge amounts of private equity and vc. I agree that the performance test for Buy super certainly pushes everyone towards not underperforming as opposed to overperforming.But I actually think for your average punter in the street, that is the best outcome because we just want something sensible that is going to get people to their retirement in a good shape if they never ever look at it.

Yeah, okay.I'm going to keep the pressure on the sector to find ways to innovate and use some of this enormous bundle of cash that we've got to prove the lives of ordinary Australians, not just by giving them, yes, unified retirement, but investing in our livelihoods by investing in the companies that we work for along the way. Sarah, I think that's all we've time for on this episode of that super show.I just wanted to mention, for folks who haven't visited our website before, the www.thatsuper.show, we have enabled a little microphone icon. You can click on that and you can leave us a voicemail up to two minutes.If you just want to give us some verbal feedback about the episode that you loved and the cut of Sarah's jib, then by all means do that. Or if you want to leave us a question that Sarah and I can debate and discuss on the show, you're welcome to do that as well.Visit thatsuper show, click on the microphone icon in the bottom right hand corner and leave us your question.

Yes, if you're really entertaining, we might even play it on the podcast. And on that outrageous note, thanks, Neil. See you soon.

Thanks, darling. See you next time. Bye for now. Thanks for listening to that super show. We hope today's episode gave you something useful to take back to your team.

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