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Royal Commission Update - Super On The Rack

Editorial Economic update 07 Aug 2018

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A report by the productivity commission said our current system is outdated and structurally flawed with members losing billions every year because of multiple accounts, high fees, low returns and expensive insurance.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…

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Adviser Ratings & Royal Commission Update - Super On The Rack, Comments Section:

12 comments

"Compare the Pair - no need to get personal (i would expect that from a union thug, but not a respectable commentator like yourself) but lets look at your response in detail: 1. Can't see TV networks shy away from money - no but why do industry funds spend the amounts of money they do to get funds into their super funds?? Any why did the banks not respond in other ways - maybe because they have a fiduciary duty To act in the best interests of their shareholders (like every company does) but when you look closer, the shareholders of Industry Funds Services are the industry funds themselves - so they ARE acting in the best interests of their shareholders! I'll wait for you to tell me why these 'profit making banks' decided not to follow suit in spending more money on advertising. 2. The banks are also in a competitive market - actually quite unscrupulously so if you look at the Royal Commission - so why would they not follow suit?? NO i am not a communist - actually used to be a Labor voter and member until Keating left politics - a side note - political bias has no place here - this is about discussing the merits of the superannuation system and the players within it - what I am questioning and asking is why to Industry Funds appear to have a different set of rules to the rest - why did the majority of the FOFA reforms specifically exclude the Industry Funds - if they are acting in the best interests of their members, shouldn't ALL super funds be subject to the SAME moral codes??? 3. Your comment about big banks and employment - they happen to be one of the BIGGEST employers in Australia and the largest tax payers - if contributing to employment and the national coffers is an issue I am all ears. Very interesting that if Industry Funds were so opposed to the big banks, then why do they invest in them? Maybe because they recognise that they are a good investment and in their members best interests?? I will gladly open my eyes now that you have pointed out the error in my ways - unions seek power and legitimacy - hmm sounds like a few insecure kids i knew at school. I have met some of the highest union officials in the land and agree wholeheartedly that power is a major factor in everything they do. I used to be a union member - including when i was employed by a bank many years ago - but when i found that the officials all got paid far better than the people they represented and the services they offered were limited, i questioned the real value. I believe that unions DO have a role to play - but all I am asking for in this discussion and in fact the Royal Commission is a FAIR and EQUITABLE set of guidelines for all - Industry, Retail, Wholesale and the advice market. I am confident your last point about the banks 'pulling their heads in' will happen but ask will the Industry Funds do the same? I know you will argue they have NOTHING to change but I ask you to do two things. Firstly, have a look at the Profit and Loss statement for CBUS super and have a look at the 'costs' to run this fund - then look at the funds under management and tell me that they do all they do for $1.50 per week per member?? And that all profits go to members??? Secondly - this will make you laugh - i can't post a link in here but I will give you the exact details - fascinating reading - Senate Hansard No. 8 2004 Thursday 24 June 2004 (a long time ago but it paints a picture of what was happening and hasn't changed since) - you want to go to page 25293 (465/489 in the .pdf document) - its easy to find as the title is Industry Funds Services Pty Ltd. See what you think of the Industry Funds after doing those two bits of research. The only change i have seen in Industry Funds as far as charges goes is i think the weekly fee moved from $1 to $1.50 (i'll save you the math) $2.3M to look after 30,000 members, run the fund, pay for all the advertising - not quite loaves and fishes stuff - but I am in awe of how they can do so much for so little."

Martin 14:09 on 13 Aug 18

"Martin........... 1. "Industry Fund Services slapped a legal ban on the ad" - so there must have been something illegal then right? Can't see tv networks shying away from taking money. 2. "WHO do you think pays for the advertising?? Industry Fund Services!" - how insightful - I thought the banks gave it to them! They're in a competitive market, so they advertise - what the hell is wrong with that? What are you - a communist? 3. Does Labor get funding from Unions perhaps?? - Um, does the LNP get funding from big business and the big banks - and do they want to give big business a 65 Billion dollar tax cut - of which the Big Banks will benefit over 17 BILLION DOLLARS!! Most of this will go OFF SHORE and WILL NOT RESULT IN JOB CREATION. GET A GRIP, LOOK AT THE SIZE OF THE MONEY BENEFIT...will unions donate around 17 Billion to the labour party over the next 10 years mate? OPEN YOUR EYES. This is BIG PICTURE STUFF Marty! Quite simply - Banks look at the size of Industry super and WANT THAT MONEY The difference between unions and big business is that unions seek power and legitimacy by getting a better deal for their members. Banks have one thing in mind - PROFIT. And spare me the "shareholder benefit" argument. They are ethically bereft as the RC has shown and criminal convictions should happen - it would certainly make them pull their heads in for a bit and hopefully ask themselves some questions - like "Sure this policy or strategy makes us money - BUT IS IT THE RIGHT THING TO DO??"

Compare the Pair 09:14 on 09 Aug 18

"Compare the Pair - Banking scum? let's look at the industry funds shall we? Firstly your point about the retail response to the "Compare the Pair" advertising - there was one - why didn't you see it or why is it not on TV every hour of every day on every station in every state? Because Industry Fund Services slapped a legal ban on the ad almost as soon as it was aired (within 2 weeks) and conveniently, the Industry Funds are exempt from a chunk of FOFA reforms. How much money is spent in comparison by the banks in promoting their super funds??? Hmmmmm - well while i am on that topic - WHO do you think pays for the advertising?? Industry Fund Services! And how do Industry Fund Services get the funds to pay for this? May i suggest you do your homework and have a look at three things: 1. Where Industry Funds Services gets its revenue from. 2. The profit and loss of ANY industry fund and work out the expenses as a % of funds under management (you will find it is a LOT higher than many retail funds and certainly NOT cheaper than the wholesale funds that most advisers recommend!) 3. Why do Industry Funds (Including in this very article) get put under less scrutiny that other funds? Is it because the very unions that established these funds back in the early 90s are beyond reproach and their (union) moral standing in the community is so high they do not need to be questioned? Or maybe, just maybe, there are political forces behind the scenes that have vested interests that need to be protected (does Labor get funding from Unions perhaps??) Do some research and i look forward to your response. Finally, I have worked in the banking sector but left 18 years ago and am not here to defend the banks but to put Industry Funds on a pedestal is a joke - i know many super funds WITH advisers that far and away out perform the industry funds. The truth of this whole Royal Commission is that the value of ADVICE needs to be put on the agenda and not the products alone. Poor products, poor advice and unethical behaviour (no matter who the employer) will always cost people money in exactly the same way as great advice, honest advisers and cost effective products will provide greater wealth over the long term. I welcome a healthy debate on my comments above :) "

Martin 12:05 on 08 Aug 18

"It strikes me that we may all be guilty of not seeing the wood for the trees in all this. We got our banking royal commission and who do you think is lining up to be the biggest winner? Industry super. David Whiteley (Industry Fund Chief Executive) must be grinning like a Cheshire Cat, no wonder we haven't seen him lately, it would be patently obvious that the man can't believe his good fortune. After all, he's the man responsible for blurting out such pearlers as 'the majority of people don't need a financial planner, they don't need financial advice, they certainly don't need to pay for it, superannuation is a long term asset and it doesn't need to be tinkered with all the time, financial planners are just gouging people's retirement savings'. Yes, that's our David. He's what we're all up against. The Antichrist of financial advice. It even rhymes. So what's the end game for David Whiteley & co? Him and his comrades want to see the end of financial advice. And he's about to get his way. Let's not kid ourselves, this isn't a slap on the wrist coming, get ready for the end of financial planning as we know it. Moving someone into a new super fund will be a twelve week process littered with regulation stacked so high you'll lose the will to live. And no fee-for-service, no way, not after the RC hands down its recommendations. It won't happen overnight, they'll put a five year window in there so existing advisers can have an orderly exit. And the real victims will be those who can no longer discuss their goals & objectives with a qualified, impartial, financial planner. Those who can no longer make plans and set financial goals and work strategically with a financial planner to improve their financial position over the long term. Those who can no longer pick up the phone and call their adviser to ask a question, or kick around an idea, or ask about Centrelink, or estate planning, or aged care. All in the name of feathering the nest of Industry super. The Royal Commission better exercise its powers carefully, very carefully, because there'll be no unscrambling this egg if they break it. "

Peter 19:50 on 07 Aug 18

"The issue is always about transparency and making sure consumers understand what they are getting into whether it be an industry fund or retail fund. The thing people must understand is that Super Funds are product providers not Advice givers so unless you understand what you have entered into you can’t blame the fund in question. There are so many variables in this issue that from what I am ready then narrow mindness of some is appalling. I am a Financial Planning Professinal who cares deeply about my clients and how informed they are. "

Jonathan 17:45 on 07 Aug 18

"Compare the pair - I agree although tone down the Banking Scum comments. I am one of them. The industry constantly harks on about the Super Ratings and Chant West results not comparing apples for apples with balanced v growth performance outcomes. It wouldn't be hard to take the portfolio allocations in industry super funds and pair them back to a more conservative level to do a more like for like analysis. I imagine this hasn't been promoted by anyone in retail because the results are still terrible. Yet, you still have planners and retail funds crying foul - do the work and show us the numbers rather than scream "poor me" from the bleachers. Not that hard and then shout from the high heavens if the results come out even or positive!"

Anon 17:38 on 07 Aug 18

"I completely agree Lucas' comment. As a financial planner, it would be utterly irresponsible of me to recommend a Balanced investor invest in a portfolio of 80% growth assets and 20% defensive assets. Whereas the largest Superannuation Funds are misleading their members by marketing their investment choices to be far more conservative than the underlying asset allocation. The regulator needs to set benchmarks for all asset allocation approaches, not just Balanced. "

Charles 16:46 on 07 Aug 18

"I work in the industry as a financial planner and I'm continually faced with the argument "compare the pair" and quite frankly I don't mind as I provide advice and services in both retail and industry product offerings. Where I am concerned is most Australians using industry super fund "Balanced offers" believe they're invested in a balanced or medium risk allocation. In actual fact when providing professional advice "comparing the pair", not all but most industry super funds balanced profiles are actually more aligned to growth or high growth investment risk profile. My point here is that I think government regulators need to set a bench mark and tolerances as to what can be considered a "balanced" approach. In doing so you will "set the bar" and create an even playing field from which all companies can compete and people can compare with confidence from. It's not hard to beat a 70/30 growth/ conservative risk profile using a 85/15 growth/ conservative profile. To Davids comment above, I have had a very similar conversation with professionals in the industry, but the overseas travel package was valued at $25,000+ from the industry super fund in question. "

Lucas Smithers 16:23 on 07 Aug 18

"Only the blind believe in industry funds. Who lost the most in the GFC ? MTAA etc . advice ? investment options ? misleading advertising ? etc etc etc "

Bob 15:40 on 07 Aug 18

"Thanks for the synopsis, nicer to read one article instead of the plethora online with every day that the commission passes! "

Janice 15:40 on 07 Aug 18

"If retail funds had ant compelling argument against industry funds they would have made it and advertised it decades ago. Compare the pair has been running for two decades. Where is the retail fund response? Advisers and others talk about industry funds being dodgy or linked to unions or whatever. Simple fact is they perform better. Where is the counter argument? It's not as if the big banks have no money to campaign and advertise it. But they'd rather lobby politicians to get a bigger slice of the pie. And 20B more in tax cuts as well. Keep the foxes OUT of the hen house! Banking Scum"

Compare the Pair 15:03 on 07 Aug 18

"Recently had a conversation with a dealer group executive, he was offered an OS trip- all expenses worth many $1000s - an industry fund gig. He refused as it was over $300, the industry fund person stated """industry funds are exempt from that rule""". I wonder how long this has been the case. Royal commission- if this is the case then ONE rule for all must be enforced."

David 14:14 on 07 Aug 18

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