Countdown to the Employee Choice Arrangement: MPFA tightens grip on agents

This article is a rewrite of a report from August 2012.

The November 2012 Employee Choice Arrangement (“semi-free choice”) entered its countdown, and the MPFA — to ensure a smooth launch — kept summoning the 19 trustees during the roughly three-month sprint. The latest: on 10 August, MPFA heavyweights met all 19 trustees, stressing strict oversight of the intermediaries who sold MPF.

What was being tightened?

• Sales documents to be archived at least seven years.
• Sales pitches to be recorded, among other monitoring measures.

Why so strict?

Australia’s pension liberalisation suggested only about one in ten employees would switch; the authority expected limited early conversions. But the market faced two constraints: rising regulatory demands forcing extra hiring as competition loomed, lifting costs; and complex sales procedures for poaching clients, dulling some operators’ appetite.

The authority had hoped open competition would detonate price cuts for employees’ benefit; that arithmetic looked shaky for now, with providers lacking incentive to slash deeply. The market had once hoped fees would glide from the 1.73% average toward 1%.

Guarding against early poaching

Market sources said the MPFA board also pushed hard against rogue frontline selling: some intermediaries seemed to be jumping the gun, cold-calling members on the pretext of imminent “semi-free choice”, slipping in financial analyses and cross-selling other wealth products. The authority vowed to stamp out such mis-selling.