Wow. They have finally been dragged kicking and screaming to an inquiry. At long last we will find out what there was to hide. But not before most Australians’ retirement savings have been significantly reduced by outrageously poor financial regulation.
This morning’s call by Australia’s Big Four banks for an inquiry has been an awfully long time coming. For years, since the Storm financial debacle during the Global Financial Crisis (GFC) of 2008, those with an interest in ethical financial practices have asked for a deeper inquiry into the banking and finance sector. In reality, there were very few institutions or individuals in Australia and overseas who were actually prosecuted for breaking the financial sector’s laws during the GFC. And many commentators have been wondering if we are building up to another such crisis as so little has changed in the behaviours of our banking institutions. And while we use the term “bank”, the top four banks are active right across the financial services sector, in lending, insurance, superannuation and financial advice. They are so much more than banks, and thus the full range of their associated activities must now be scrutinised.
In particular, the banks’ ownership of a significant proportion of retail superannuation funds, often sold by their own employees in their roles as financial advisors, has led to a “Dracula in charge of the blood bank” scenario, where such employees cannot possibly recommend competitors’ funds. This has been revealed in ASIC shadow shopping exercises where most bank employees simply recommend their own product, even though it shows lower returns. And these so-called “advisors” are bound by law to have their clients’ best interests at heart. Similarly, with the sale of insurance, whereby customers of large banks were tipped into those banks’ own insurance products, only to find the insurer wiggled out of honouring the policy when they became ill or passed away.
All this and more has been revealed over time by diligent journalists and brave whistleblowers who risked their jobs and reputations to shine a light on – no, NOT bad behaviour – but crime. We are not talking about naughty children here, although the banking sector and conservative politicians, who have resisted this inquiry, love to frame the debate in terms of mere “misconduct” as if the staff concerned were just having a bad day. This is not about “misdemeanours”. This is a systematic, long-term culture of breaking the law. It is about ignoring the many regulations put in place by ASIC and APRA, which are meant to ensure the customer’s interests are the primary concern when it comes to financial advice and investments. And sadly, both these regulators have failed to act when necessary, choosing instead to plead with the big financial institutions to change their ‘culture’ rather than taking them to court.
The result for Australia’s 4.5 million retirees is obvious. Out of all OECD nations, Australians pay the third highest fees in superannuation. These fees are often complex, and layered, for example not just as a management fee for funds invested, but also for changing investment preferences. Thus the final retirement nest egg for many super fund members is significantly reduced by unnecessarily high fees. Add this to the awful truth that those retirees who have accepted the investment advice from a financial planner from one of the Big Four banks are highly likely to have had their savings automatically directed into the bank-owned retail funds, which over the long term (decades) have delivered lower returns.
The sad fact is that, instead of hitting this unethical and, in many cases, illegal behaviour hard, and using their scarce resources to help consumers understand the unnecessarily complex landscape of retirement savings, our regulators have sat by, metaphorically wringing their hands and mouthing platitudes.
As they say in the classics, the jig is now up! The groundswell of discontent, over years of big banks rorting the consumer, has now erupted into a call for a comprehensive investigation of how we ever got to this sad situation – a call that can no longer be ignored. As an advocate for a fairer system for all Australian retirees, YourLifeChoices has supported the call for such an inquiry for years.
It’s time to bring it on.
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