This week I've blogged about the Australian superannuation (pension) system and the regulation of investments and investment advice. In sum, Australia is in the midst of reconfiguring its system, which ranked significantly higher than the U.S. patchwork of 401(k)s, DBs, etc. in terms of adequacy, sustainability and integrity (e.g. regulation, governance, etc.).
The reforms include the development of a robust set of low cost default investment products for workers who are not interested in making their own investment decisions. Although Australian employers are required to make contributions to an account (similar to U.S. 401(k)s) for their employees, the employers will have virtually no legal liability for choosing the default investment product for employees who do not make a choice. Employees who want advice on their investments, whether in a superannuation account or otherwise, will receive that advice from an investment adviser who must provide advice in the best interest of the client, and who will be prohibited from receiving commissions, rewards for scale and soft dollars.
The Australian pension system holds less than ten percent of the pension assets of the U.S. employer-based system (A$1.28 trillion v. $17.5 trillion). Perhaps the smaller size enables the Australian system to be more nimble. Or maybe it means there is less available money for lobbying to retain the status quo of a system that is very lucrative for the financial services industry. My question for the week harks back to my question of last Friday. It surprises me that employers and employees do not join together to demand a better system in the U.S. It appears to me that in a 401(k) system employer and employee interests align for a low cost, high performance system that does not require employers to be experts in financial products. Australia is ahead of us. Why can't the U.S. at least make progress?
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