Financial sector chief blasts car industry cash

Industry leader John Brogden attacks the federal government's subsidies - and preoccupation - with an 'unsustainable' car industry.

By InvestSMART · 16 Feb 2012

By InvestSMART ·
16 Feb 2012

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Industry leader John Brogden attacks the federal government's subsidies - and preoccupation - with an 'unsustainable' car industry.

IN A week in which jobs continued to be shed in banking and financial services, industry leader John Brogden has attacked the federal government's subsidies - and preoccupation - with an ''unsustainable'' car industry.

Mr Brogden, CEO of the Financial Services Council, compared the privileged treatment of the car industry with that of financial services.

Financial services was facing a revolution with the Future of Financial Advice legislation before Parliament, he said in a keynote address to the Deloittes Leadership Series lunch in Sydney yesterday.

''That this revolution will take place in poor markets and ongoing international uncertainty is no joy, but simple reality. So the performance of Australia's largest sector is critical to the Australian economy,'' he said.

''Governments need to understand that, and they need to remember that unlike the unsustainable car industry - an industry that has been subsidised by the Australian taxpayer since 1908 and for every year without exception since - we don't have our hand out for money.''

Financial services was the biggest single sector in the economy, responsible for 10.6 per cent of GDP, and employed 428,000 people, he said.

Speaking later to BusinessDay, Mr Brogden also said that, unlike the car industry, large profits from financial services remained in Australia, through the auspices of superannuation.

''It's an extraordinary frustration that a declining industry like vehicle manufacturing instantly gets government attention and talk of more subsidies yet financial services ? is regarded [by government] as a pariah because of its decision to be efficient.''

On the financial advice reforms, he said the government was discussing with industry a transition period before the legislation's headline start of July this year. This would either be a hybrid approach, where some measures started in 2012, others in 2013, or where early adoption was encouraged, but there were no penalties for non-compliance. The council has estimated the cost of implementing the reforms is $700 million in the first year and $375 million every year after.

The sector covers financial advice, life insurance, funds management and superannuation.

In key markers:

?The number of financial advisers declined last year by 1.7 per cent to 15,500, the first decline in 12 years and compared with 2 per cent growth for most years.

?Funds under management peaked at $1.85 trillion in June, falling to $1.79 trillion in September. Funds flowing into the sector grew by $30 billion over the 12 months to September.

?Money paid directly to superannuation funds, which reflects discretionary contributions, last year was $5.5 billion or 25 per cent lower than before the GFC.

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Frequently Asked Questions about this Article…

What did John Brogden say about government subsidies for the car industry and how does that relate to financial services?

In a keynote address John Brogden (CEO of the Financial Services Council) criticised the federal government’s long history of subsidising the car industry — saying vehicle manufacturing has been subsidised by taxpayers since 1908 and every year since — and argued it receives privileged treatment. He contrasted that with financial services, which he said doesn’t have its “hand out” for money and is treated poorly despite being an efficient, large sector of the economy.

How large is Australia’s financial services sector and why does that matter to everyday investors?

Brogden noted financial services is Australia’s biggest single sector, responsible for about 10.6% of GDP and employing around 428,000 people. For everyday investors that matters because the sector underpins retirement savings (superannuation), funds management and access to advice — so its performance influences job markets, savings outcomes and the broader economy.

What is the Future of Financial Advice (FOFA) legislation and what could it mean for investors?

The article says FOFA reforms were before Parliament and described as a revolution for the industry. The government and industry were discussing a transition period or hybrid approach to the headline July start date. For investors, FOFA aims to change how advice is delivered and regulated — potentially raising standards but also leading to industry adjustments as firms implement the new rules.

How much did the Financial Services Council estimate the cost of implementing FOFA reforms will be?

The council estimated the cost of implementing the reforms at about $700 million in the first year and roughly $375 million every year after. These are industry-level estimates reported in the article.

What recent trends in financial advisers and funds under management were reported, and why should investors pay attention?

The article reported the number of financial advisers fell 1.7% last year to 15,500 — the first decline in 12 years — while funds under management peaked at $1.85 trillion in June and fell to $1.79 trillion in September. Funds flowing into the sector grew by $30 billion over the 12 months to September. Investors should watch these trends because fewer advisers could mean tighter access to personalised advice, and fluctuations in funds under management reflect market and flow dynamics that affect returns and options.

What did the article say about discretionary superannuation contributions and the impact of the financial crisis?

The article noted money paid directly to superannuation funds (discretionary contributions) last year was $5.5 billion, around 25% lower than before the Global Financial Crisis. For investors this suggests discretionary top-ups to retirement accounts declined after the GFC, which can affect long-term retirement savings growth.

Why did Brogden say large profits from financial services remain in Australia, and why is that relevant to investors?

Brogden told BusinessDay that, unlike the car industry, large profits from financial services largely remain in Australia through superannuation structures. This is relevant to investors because retained profits flowing into domestic super and funds management can support local investment capacity and long‑term retirement outcomes.

Could government focus on subsidising vehicle manufacturing instead of supporting financial services influence investment policy or markets?

According to Brogden’s comments in the article, government attention and talk of subsidies for a declining industry like vehicle manufacturing can skew policy priorities away from sectors such as financial services. For investors, that means it’s important to monitor policy debates — government focus and subsidies can change industry economics and influence where capital and political support flow.