Opinion: Royal Commission to shine a light on super

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While Australia’s superannuation system is regarded as one of the best in the world, it may be in for a shock as the banking royal commission puts the $2.6 trillion industry under the microscope next week.

The battle between industry and retail funds seems to have been won by the former. But some big banks – those that own oft-maligned retail funds – which have been stung by the banking royal commission may now be quietly chuckling knowing that the spotlight is about to be shone on all super funds, including ‘squeaky clean’ industry funds.

Meanwhile, although big banks’ shift out of the wealth management sector has gained ground, Westpac has signalled that it’s still in it for the long haul. The bank has declared it will take a $70 million revenue hit to cut fees for customers on its BT Panorama Investments platform. While not one of the ‘Big Four’ but still a for-profit fund owner, AMP has also announced it will put aside $300 million to remediate poor advice given to customers.

Both these moves have been reactions to the royal commission, which has ripped into big banks and financial services for poor advice, corruption, excessive fees and other dodgy practices.

A report released earlier this month showed that Australians have forked out around $700 billion in fees to super funds.

While the Australian Superannuation Funds Association tried to come to super funds’ rescue, the sector’s fee structure remains less transparent.

The royal commission will likely shine a light on this and other areas of an industry that has so far escaped scrutiny because of its solid performance.

Although Financial Services Minister Kelly O’Dwyer was reluctant to hold a banking royal commission previously, her more recent comments about the investigation – both past and future – have become more pointed.

Speaking to the Financial Services Council last week, Ms O’Dwyer warned that the commission “could deliver some shocking stories about the super sector”, referring to the behaviour of the industry as well as the regulators.

She claims the royal commission is a chance for the industry to reflect on the behaviours that led to the probe. She also warned that the sector should now “draw a line in the sand” in regard to any questionable or underhanded practices, and to do what it takes to restore trust in the financial services and wealth management industry.

Ms O’Dwyer also relayed that the Government and the Australian Securities and Investments Commission will be “looking to firms to ensure they take all necessary action and play their part in restoring that trust”, including reviews of financial advice and fees charged.

If we’ve learnt anything from the royal commission so far, it’s that no stone has been left unturned in exposing poor practice and dodgy dealings in the financial services sector. It could be an ominous warning for the super industry which has so far not attracted the same attention.

One factor that worries many fund holders is who will bear the cost of compensation and remediation for funds found guilty of dodgy practices. Another is how the royal commission findings will affect stocks and investments.

Investors are now claiming that regulation is replacing disruption as a key theme to watch in the coming year. Airlie Funds Management Matt Williams said that the public’s desire to see change could affect the bottom lines of many companies in which these same people have investments.

Super funds may have to increase fees, or we may see softer returns as a result of regulatory risks.

Mr Williams referred to one of the Airlie Fund’s own holdings to illustrate his point: “They copped a regulatory decision on the rate of return they can get from their asset and it was way worse than what we were expecting. The stock suffered accordingly.”

Many fund members fear they’ll have to foot the bill to cover the cost of regulation. However, Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck said that super funds were morally and legally obligated to ensure that members’ savings were not used to fund the resolution of complaints.

“It would be unacceptable, inequitable and unfair if members’ retirement savings were used to fund the resolution of disputes unrelated to superannuation, such as complaints against banks and financial advisers,” said Ms Scheerlinck.

The dominance of the big banks in the wake of the Global Financial Crisis has started to unravel thanks to the royal commission. Maybe the same will happen with the super industry. One thing’s for sure, the royal commission will be a shock to the system and one that will no doubt create some changes in the industry.

Are you happy with how the royal commission has operated? Will you benefit from the outcomes? Or are you worried that the cost of such action will end up coming out of your pocket?

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Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?

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41 Comments

Total Comments: 41
  1. 0
    0

    where there is big money there is always big corruption.
    Who should cop the flack from crooked behaviour within superannuation funds? Simple. The CEOs and management teams who rule over this behaviour. That SHOULD include severe financial penalties for those who orchestrated the bad behaviour and/or benefited from it.
    I’m will to bet the well worn path will be followed: no action and the golden parachute. That’s how the top end of town works. The mates club with mates looking after other (criminal) mates.

    • 0
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      RICO springs to mind – proceeds of criminal activity – proceeds of organised criminal activity….

      Ten years minimum with no privileges and RICO all ill-gained assets.

  2. 0
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    So the Royal Commission is going to look into Super, hey? Well, they “looked” into banks and not much was really turned up or made a big difference in practices. No big bank heads were punished in any way really and a few crumbs were thrown to the public to show they were doing something. Now lets see how they attack super specially the industry funds which the gov is so keen on getting under control .
    Mick , you are sure right about the mates club! Suggest everyone read GAME of MATES by Cameron K. Murray & Paul Frijters. Its a real eyeopener on how we are all being conned by our pollies and big business.

    • 0
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      Thanks for the tip Pedro the Swift, have followed that up and in the process of getting hold of it one way or another. Love reading this sort of expose book!

    • 0
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      If you own shares I strongly suggest you go to an AGM where they set CEO remuneration.

      Institutional shareholders almost always vote for obscene pay increases because they have vested interests: this is a salary merrygoround where CEOs of companies which own shares in other companies get a flow on effect with the obscene salary coming to them as well.

      It’s a fraudulent club and if we had a real government institutional shareholders would be barred from voting on pay issues. Under the current one we hear the ‘free market’ rhetoric and a steadfast refusal to stop the theft of shareholder wealth. Same deal in many other areas of our financial system. Crooks looking after crooks.

    • 0
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      You may be a tad premature, pedro the swift, I don’t think that there was expected to be much happening until the final report and recommendations are issued. Sure, some heads have rolled and I think there may be a few more together with some changes to the banking and insurance industry once the Royal Commission has completed its work.

    • 0
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      Spot on, MICK. Just a few months ago there was a very interesting article in the press when the CEO of AMP resigned. It disclosed how many companies she was on the board of as well as a list of directors of multiple companies and how, in some cases, there was a perceived conflict of interest.

      Just adding to what pedro the swift raised, it has always amused me how some politicians who had the arse out of their pants before becoming an MP had the wherewithal to purchase multi million dollar homes. In some cases they were invited to become directors and even chairperson with little to no knowledge of the industry involved.

    • 0
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      After so many good comments and justified criticism of the banks, out comes the rhetoric of our resident anti government voice, so just to clear things up a bit, it’s an atrocity that the banks have got away with their behaviour for so long, and during the time that they have been getting away with their behaviour we have had governments of all hues running the country since the 80’s when superannuation was introduced, in my opinion it was the best policy that was ever introduced for the benefit of the working man, the only problem is after many have already stated where there is huge ammounts of money corruption usually follows, that corruption isn’t only amongst the top end of town, that’s the reason we need a full investigation into the superannuation industry, including all funds.

    • 0
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      Wasn’t is something obscene like 127 people held virtually all ‘board’ positions, OM?

      Slowly the truth dawns on the many….. truly the worst enemy of the politician and the shady business dealer is the internet.,…..

      “One guarantee of a free society is a free exchange of information!” – JFK….. now you know why there was a highly professional hit on him…. nobody in the business believes it was a lone crazed gunman.

    • 0
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      Managed to source that book Pedro the Swift, found it through the Interloan Library Service, from Darebin Library here in Vic. Looking forward to reading it now.

  3. 0
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    Flaming Dipstick ! Thank god he’s going to be out on his ass next year !

  4. 0
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    Good on you Mick n Pedro, here the rich get richer while the poor get poorer, if only the CEOs could be made accountable for the money they rob off the poor, and the ministers made accountable for using our tax funds, the world would be a better place.

    • 0
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      LoLo, I am 100% agree with all of you only the CEO and the ministers should made accountable to pay back not the bank pass on to the customer by increasing charges on the bank fees and ministers start coming up with more taxes. We were see how god are going to punish this type of crook.

    • 0
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      Correction LoLo.
      The rich and the poor are getting richer
      The economy is doing well – 20+ years of growth under LnP
      record unemployment
      surplus budget on the horizon and labor debts will be repaid once again

    • 0
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      oldaid, haven’t you heard about the stagnant wage growth that accompanies (& has probably created) the present 20% company profits?

      And how about under-employment & shitty, casual jobs with no sick pay or holiday pay, that make the unemployment figures look good?

      You’re living in a 20th Century dreamworld. The ground rules have changed & our “democracy” is not keeping up, nor does it care.

      When or if the surplus budget arrives on the horizon, I wonder if they’ll pay off the 66% of Liberal’s debt before they pay off the 33% of Labor’s debt? Or will we be still talking about Labor’s debt NEXT century? We will be if these Liberal Government liars have their way!

      While we’re on the subject, the Labor debt saved us from a recession during the GFC while the present government’s debt has feathered the nests of the rich & powerful. I wish we could apply penalty rate cuts to CEO’s salaries & bonuses.

  5. 0
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    A Royal Commission should be set up on a continuous basis we have enough corruption to keep it going for many years.There is so much greed and corruption going on in Australia they would never be out of work.

  6. 0
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    Will AMP’s #300m come from the hands of the shareholders and the execs etc, as is properly should – or will AMP just levy a fee on the peasants foolish enough to be invested in them?

    Will AMP be placing a ‘please pay by due date – you forked it: you fix it’ on its deceased execs who’ve ‘scaped the lash by running like craven dogs the moment this hit the fan?

    How many millions were their golden handshakes?

  7. 0
    0

    I now await the Usual suspect apologists who will begin screeching that without all these wonderful firms there would be no employment…. you just can’t train some people into the understanding that removing a corrupt firm leaves that field open to one that will abide by the rules and by common decency – or suffer…. and that is precisely why we have rules and not some bar-room brawl called ‘unconstrained free enterprise governed exclusively by market forces’.

  8. 0
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    It’s all well and good to compare super funds but because of a lack of transparency, we don’t know if the comparisons are before or after fees are deducted. I was staggered by the reported $700 Billion in super fees until I read the report which actually states that the figure is over 2 decades. Even so, this equates to an average of $2,800 for each worker in Australia per annum or $54 per week. The average weekly pay is $1628.10 and 9.5% of that is $154.66 so if we compare the percentage of fees to super we reach a staggering 34.92% taken out of super each week. The worker is being ripped off and I care not whether it is an industry or retail fund doing the rip off, it has to be made more transparent and more super being credited to those who earned it, not those who steal it.

    • 0
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      Even worse when you consider the self employed are not forced to have super so it’s only PAYG workers being charged these obscene amounts.

    • 0
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      Good work!! Well calculated out…. and cannot but agree.

    • 0
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      Thanks Bob, the percentage of fees against the average balance is a more realistic 3.84% but the bulk of the work involved is firstly setting up an account and adding regular deposits so perhaps the fees could be 3.84% of each deposit. My understanding of super funds, and they are all different, is that of the percentage achieved each year that 1% goes to administration and the remainder goes to the member. It would seem more realistic if a fee of 3.84% was charged to each deposit as it was received and no further fees charged. Is it double dipping to charge a fee on balances which also earn 1% for the administration?

    • 0
      0

      I’ll look at it later and think it though – just back from the doc and swollen lymph glands and sort of calloused pleura – cause of the chest pain… she only gave me six or seven documents for tests and such – so I’m planning to be a burden on the healthcare system for a while yet….

      Time for a drink to drown my sorrows….

    • 0
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      At a glance I’d say that any chance for a double dip would be SOP.

  9. 0
    0

    You’d have to be severely sight impaired or with vested interests not to see how shocking our superannuation system has become. These findings from the Royal Commission should surprise no one and I don’t think they really will to those that can do something about it, the government.
    The faults are patently obvious to anyone who has even the most basic economic knowledge.
    Extremely risky investments, supported and encouraged by massive government tax incentives, are just the start.
    Huge profits made by banks, fund managers, real estate agents and so called “financial advisers”.
    It won’t take much to remedy most of the faults, but which government will have the courage?
    Hopefully, the Royal Commission will embarrass them sufficiently to finally do something before it gets even worse.

  10. 0
    0

    I lost twice due to 2 poor advisors & one was assisted by receivers KPMG !& no come back then !

    • 0
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      My husbands superannuation was long gone into receivers hands also when he died and I went looking for it.

      It was a learning experience.

      It’s why I keep my investments outside superannuation and pay the taxes.

      Maybe when Keating started it and it was tax free going in and the returns were tax free and you paid coming out right at the end it might have been a good compounding investment but all the changes have made it very unrewarding for the bottom 60% of income earners in my opinion.

      And absolutely terrible for defined benefit pensions or those who bought up annuities under the old rules.

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