State of the Industry address - Morningstar Annual Investment Conference
Good morning and welcome
It is a real pleasure to be here today particularly covering the state of the industry when the industry is facing such significant change.
When I first accepted the invitation for the conference it was prior to Christmas last year and prior to the Henry Tax Review being handed over to the government. Little did I know that the talk would fall right in the middle of a concentrated period of announcements that would dramatically change the state of the industry.
Congratulations to Morningstar for the foresight in the timing of the conference which comes at a very interesting time - four days after the Minister for Financial Services Superannuation and Corporate Law Chris Bowen released its reforms on Financial Advice, three days prior to the government’s release of the Henry Tax Review and a little over a week prior to the government’s budget.
The timing of today’s conference could not have been better and it leaves no shortage of issues to discuss, particularly on the regulatory front. I gave a talk a week ago and spoke about regulation being on the starting blocks. A lot has changed in a week and the starters gun has gone off.
The changes that Chris Bowen announced last Sunday on it’s own will have significant impact and that’s before we’ve heard from Henry and Cooper.
Despite all the changes that the industry is facing, the state of the industry is strong with continued growth prospects supported by the superannuation guarantee. In the December 2009 quarter alone contributions into super totalled $17.8bln and for the year ended June 2009 superannuation contributions totalled $112bln. This is a healthy industry and globally recognised. And with any growing industry it also breeds competition and excellence and we should not underestimate the strength of our financial services industry, its players from consultants through to investment managers as well as innovation and service.
But the strength of any system is it’s ability to constantly re-asses itself and adapt to change to improve on the status quo. Sometimes this is a result of some failure and other times it is driven by competitive forces.
The industry is now entering a significant period of change where business models will be tested and require re-adapting, the way financial services providers do business will change, products will change and investor behaviour will change.
It will take years for the industry to adjust. Even with the recent Chris Bowen announcements, uncertainty remains given we are in an election year and the amount of legislation that still needs to be written and the possible unintended consequences.
It was Peter Bernstein in 2003 who first spoke about the world being at a “point of inflection” post the tech boom but the real “point of inflection” is now.
When there is wealth destruction to the extent that there has been then there will be repercussions. Regulation is just one of them, but there are many others that are pertinent to managing client funds that as investors we should be aware of over and beyond the immediate headlines around regulation. Some of these will be covered in other sessions today but in addition to regulation the other two issues that constantly comes up in my discussions with financial planners is China and the changing economic tide and term deposits.
The growth of China and the emerging economies is dominating the headlines and we are seeing a shift that is glacier in nature but nonetheless worth examining. This is a long term trend that the GFC has accelerated but how should we view this, particularly given Australia’s close links with China.
The other is term deposits. The amount of funds that have gone to term deposits is unprecedented but will it last and importantly do we want it to last. The rates appear attractive but as a long term strategy it’s not the right strategy.
More on that later.
Firstly the Changing Face of Economic Regions and the implications of the China tide.
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