This week has seen the next round of the royal commission hearing into the banking sector begin – this time focusing on the superannuation industry. There has been much anticipation for this round of hearings, particularly from sections of the finance industry keen to have a spotlight directed on what they consider one of the more opaque sections of the Australian financial landscape. Australians have over $2.5 trillion tied up in their super and many say such scrutiny is long overdue. With only 2 weeks of hearings, those calling for a thorough examination are hoping for a few bombshell revelations that will be the catalyst to further investigation and changes to how the system functions.
There will be over a dozen funds, from both “Industry” and “Retail” sectors, called to give evidence. The hearing are expected to focus on fees charged by funds and actual returns to retirement savers, as well as related issues such as the relationship between trustees and financial advisers, the current legal regime and the effectiveness of regulators.
A report by the productivity commission said our current system is outdated and structurally flawed with members losing billions every year because of multiple accounts, high fees, low returns and expensive insurance. It found that one in four funds underperforms, meaning millions of people are affected by these shortcomings. It said fixing the problems of unintended multiple accounts and entrenched underperformers could benefit members by $3.9 billion each year.
In his opening submission, counsel assisting the commission, Michael Hodge QC, said that the super industry was shrouded in secrecy due to the lack of regulation of the conduct of the trustees running funds. Hodge said this gap was created because of how the two bodies ostensibly in charge of regulating the sector saw their roles. APRA saw itself as a prudential regulator and not a conduct regulator, whereas ASIC was only responsible for the conduct of trustees of superannuation funds under the Corporations Act, and was not responsible for monitoring conduct that was in breach of the Superannuation Industry (Supervision) Act. He also spoke about the challenge, which he termed ‘inherent tension” confronting APRA in terms of industry stability and enforcement action. Taking action against one fund may trigger a shock-wave through the sector causing destabilisation - but you'd have to hope all funds weren't engaged in the same dodgy conduct...right?
For those political and industry animals hoping that the industry funds were in for a torrid time, Hodge indicated they may be disappointed. Many who were hoping retail funds might get a leg up by the commission finding misconduct within industry funds would be anxious by the comments of Mr Hodge, who said retail funds operated by the big banks had a far greater number of problems than industry superannuation funds. He said the examples of misconduct filed by industry super funds were “extremely minimalist” when compared to issues identified by retail superannuation funds.
This was exemplified in the initial sessions yesterday which saw NAB in another “fee for no-service” scandal, accused of labelling some fees as commissions to avoid refunding customers for services they have not received. Service fees have had to be refunded when it turned out no service was given, but commissions apparently do not. The distinction may sound semantic, but NAB is currently in the process of completing refunds totalling more than $120 million to hundreds of thousands of customers for incorrectly applied fees, and fees for no service between 2012 and 2017.
The commission continues today…