- The last thing anyone needs is industry super acting like retail funds – and now we have proof
- By Greg Jericho
- Contributed by: Bazza ( 1 article in 2018 )
Kelly O’Dwyer wants to ‘lift industry super funds to at least the same standard’ as banks. The royal commission shows that’s the very last thing any government should be wishing to do.
Who would have guessed the for-profit sector would be the one gouging its members? Oh that’s right, everyone bar the government
As we look on the events this week at the royal commission into the financial sector it is worth remembering that we are not hearing about the actions of banks and retail superannuation funds because the government wanted this news to be known.
Malcolm Turnbull scorned Bill Shorten in parliament last year when he asked if the government would set up a royal commission. Turnbull suggested: “What the leader of the oppposition is doing, in his gutlessness and in his pathetic populism, is promising years and years of lawyers.”
Turnbull continued: "The banks are not scared of a royal commission, sunshine. They have got plenty of lawyers and big law firms."
You have to love the condescending use of “sunshine” – I guess if you are going to be wrong, you might as well be arrogant about it.
The week before the government did announce the royal commission, the minister for industry, innovation and science, Senator Matt Canavan, argued in a similar vein that it would “turn into a bit of a lawyers’ picnic and a waste of time”.
When announcing the commission, the prime minister kept insisting it was only necessary because “uncertainty, however, over the potential for such an inquiry is starting to undermine confidence in our financial system” and that “the reckless actions of Bill Shorten, the Greens and others” in calling for a royal commission were “harming economic confidence and putting that at risk”.
The treasurer, Scott Morrison, described holding the commission as “regrettable” – not because the actions of those in the financial sector had led to its need, but because “politics is doing damage to our banking and financial system”.
Peter Dutton then suggested the commission was good because it provided an opportunity to “have a look at some aspects within the industry super funds which have union members and whatnot on the board”.
So no doubt he was looking forward to these past two weeks where the royal commission has turned its eyes towards the superannuation sector.
Of course, to the surprise of no one except perhaps the minister for home affairs, it has found the retail side is a stinking cesspit, while the industry super funds have pretty much sailed through unscathed.
Rather than not being scared of the royal commission, NAB for one have given the impression of fearing it greatly. Its lawyers held off providing documents for as long as possible, dumped 3,000 of them the week before the hearing and then tried repeatedly to prevent them being released publicly.
The hearings found NAB was charging fees to dead superannuation customers and is now paying more than $100m in compensation to super customers who were falsely charged a service fee for general advice when they did not actually have an adviser linked to their account.
So bad were the findings that at the end of the week NAB issued a public apology.
We also heard that the Commonwealth Bank’s wealth management arm, Colonial First State, committed more than 15,000 offences by failing to move thousands of members from high-fee funds into the low-fee MySuper regime in time to meet a government deadline. Suncorp waited until the last moment to do so – even though it was in members’ interests to do it earlier.
This week it was also AMP’s turn to announce it would be paying compensation for those who ended up paying more in fees than they earned on their cash investments.
So horrendous were the fees that one case was detailed where a person had invested $100,000 in cash and yet had actually lost money because the fees and charges were greater than the rate of return achieved.
AMP Super suggested it was hamstrung by related parties such as financial advisers and investment managers whose fees were such they would outweigh the return on investments.
Meanwhile, IOOF was revealed to have serious conflict of interest issues. For example the period in which IOOF Investment Management had responsibility of acting in the best interests of trustees as well as making a profit for shareholders.
The royal commission has revealed that the fault in the retail superannuation sector is not a rogue organisation or just bad luck on the part of some banks, but that the system itself is geared towards poor returns and rewards for fund managers and advisers and the bank itself, rather than the members.
Who would have guessed the sector of the superannuation industry that was geared towards profit would be the one that would most gouge superannuants in order to make a profit?
Oh that’s right, everyone.
The old adage is never to hold a royal commission unless you know what it is going to find, but that wasn’t the reason the government held off on holding this commission – it knew what it would reveal. It tried to limit the damage with some pretty limp terms of reference and a hope that talking about union-backed super funds would mean people would think there was a great scandal about to be revealed that had links to the ALP.
But no. About the worst that was revealed was the industry super fund Hostplus had spent money wining and dining clients at the Australian Open. And while even the chief executive of Hostplus, David Elia, admitted he would rather not have to spend money on such hospitably, in Hostplus’s favour was the fact that rather than having to apologise for its members losing money, it was the best performing super fund in 2017-18 and the fifth best over the past 10 years.
So lacking in scandal were the industry super funds that the counsel assisting Michael Hodge QC stated that “it is our view that the commission’s review of documents identified fewer examples of types of conduct of the industry fund trustees that raise questions warranting oral consideration”.
That is, we don’t even need you to front up to be cross-examined.
In 2016 the minister for revenue and financial services, Kelly O’Dwyer, targeted the industry super funds saying the government wanted to “lift superannuation funds to at least the same standard as other financial services organisations like banks and life insurance companies”.
What the royal commission has shown is that this is the very last thing any government should be wishing to do.
There are no guarantees in investing, and as every advert for superannuation always suggests, past performance is no indicator of future returns. But the royal commission has revealed that given their past performance, you would have to seriously question anyone advising you to have your super in a retail fund.
And it also reveals that the government’s arguments against the industry super sector have been completely destroyed.
• Greg Jericho is a Guardian Australian columnist