ISA recently posted a submission to the Productivity Commission’s inquiry into the efficiency and competitiveness of Australia’s superannuation system. ISA called for a crackdown on big banks and other for-profit entities who, it said, have been allowed to exploit superannuation fund members in the name of increasing sales.
ISA said the current superannuation system is like FOFA – where for-profit companies like the big four banks have been able to circumnavigate or “work around” legislation and exploit consumers for increased sales and insurance commissions.
“From inception, FOFA has been subject to substantial lobbying efforts that seek to weaken it, and for-profit entities have immediately sought to ‘work around’ and adapt to FOFA in a way that maintains as much of their lucrative businesses as possible,” ISA said in the submission.
“For so long as the superannuation system allows participation by entities that have a strong culture of prioritising themselves rather than serving others, this will happen. The inquiry’s proposed default [superannuation] models will certainly be subject to the same dynamic.”
ISA pointed to exemptions in FOFA which currently “allow bank staff to earn volume-related bonus for selling superannuation under general advice”.
FOFA also “allows the payment of commissions on individual life and income protection insurance on policies paid for out of choice superannuation products which provides strong financial incentives for advisers to switch members out of default superannuation products,” ISA said.
ISA pointed to research from the Roy Morgan Superannuation and Wealth Management in Australia 2011 and 2015 reports which showed the big banks shifting away from selling products via financial advisers and an increase in direct sales to consumers instead.
“This activity has almost doubled across the four major banking groups from 10 per cent in the 2011 Report, compared to 19 per cent for the three years to December 2015,” ISA said.
“[This takes] advantage of the lower levels of consumer protection outside personal advice to aggressively sell super directly.”
ISA said regulation and further competition are not the answers for cracking down on misconduct from for-profit entities in the superannuation sector.
“Regulation alone has never been enough to ensure good behaviour. Regulation is particularly unreliable in relation to the finance sector because that sector is especially vigorous in its efforts to influence policy makers,” ISA said.
There is a concern that “each of the inquiry’s proposals seeks to remove superannuation from the industrial system, and envisions private sector, for-profit financial institutions bidding for and winning pools of default superannuation members,” the submission said.
“Such an outcome will deliver to the for-profit part of the super system a ready-made, government-sanctioned, and generally disengaged customer base at a very low acquisition cost.”
Instead there needs to be a focus on culture and values within organisations ISA said.
“The reason why some funds tend to consistently perform well, and prioritise members, is an amalgam of culture, values, institutional objectives, and governance.”
The piece that gets constantly overlooked is how consumers are tricked into consolidating super via a click of a button on the super fund websites. Industry Super Funds and other funds are just as bad when it comes to this deceptive practice.
They are both as bad as each other until clients have opt in only and choose whether or not they want to decimate their retirement funds with “compulsory insurance” with premiums being increased at whim by the instos.
The Productivity Commission should be more concerned about why default fund insurance policies are getting so expensive, that it’s often cheaper for clients to get personal cover (even when commissions are paid). Default life insurance should be opt-in, not opt-out.
They don’t like competition, or advisers giving “good advice” where they offer inferior insurance products and service
FoFA does not stand for Future of Financial Advice, but rather Future of Financial Product Selection.
The old boss from the FPA used to say “separation of product and advice”.
The banks and the ISA are two delinquents fighting in the school playground, and both should be sent to the headmasters office.
And when will the Industry Super Funds be called out by Govt for their lack of transparency on their appalling ‘change at trustees whim’ definitions on TPD cover for members? Royal commission on Industry Super Funds next?
The union funds are only upset because the banks are using the carve out their mates in the ALP set up for them. Apparently general advice from an union fund is good but general advice from anyone else is bad. The ISA/Unions/ALP have only ever been interested in protecting their own self interests. Having competition and choice is good for clients, but the closed shop mentality of ISA/Unions/ALP will mean they wont be happy until all advice lead to their product, and their product only. The sad thing is ASIC is doing everything in its power to make this happen.
Pot calling the kettle black!
Whitely would have been a great propaganda mouthpiece in communist Russia, think he actually believes this tripe as if the industry funds are the only ones who can save the world
Didnt Labor include a carve out in FOFA as a sop to their mates in Union Super?? How do they manage to provide “advice” to their members over the phone with absolutely no documentation???
Why do you print this rubbish? As if IFA member funds are not doing the same.