In the last few years, thousands of Australians have been ripped off by the big banks. Sick and dying people have been denied insurance payouts by the Commonwealth Bank’s insurance arm, CommInsure. More than 1,100 people lost savings after following fraudulent and misleading advice from CommBank financial advisors, and thousands more lost their life savings after the big banks underwrote a timber financing “Ponzi scheme”. Since 2009, several of the big banks and many of their subsidiaries have been forced to pay more than $340 million in refunds, fines and compensation to wronged customers.
0 in 10
The number of businesses that when offered incentives by a bank changed their default superfund. Source: UMR Research, Default funds and the banks October 2016
The reality of superannuation is that the vast majority of Australians – an estimated 8 million – typically do not choose their own fund they rely on the default fund that’s established by the employer.
Industry Super Australia chief executive David Whiteley
Industry SuperFunds long term outperformance
Source: ISA analysis of SuperRatings Fund Crediting Rate Survey, SR50 – balanced option medians, June 2017
It’s no wonder that a Senate inquiry into the Big Four last year found that “the culture of these institutions is often not one that has consumers at its centre”. But that culture could soon dominate Australia’s $2 trillion superannuation industry. The big banks are putting pressure on the Federal government to make dramatic changes to the super system, and it seems the government are now preparing to act on the biggest items on the banks’ wish list. The banks are lobbying the government to remove the protections ensuring workers who don’t choose a super fund are put in a high-performing fund by default, and change the boards of not-for-profit funds so they are run more like bank-owned super funds. If implemented these changes could see the kind of scandals that have overshadowed the banking and finance sectors in recent years come to define the super sector as well.
In the best cases, poor financial advice leaves Australians’ investments and retirement savings facing elevated levels of risk. In the worst, Australians have had their savings wiped out.
A 2016 Senate report into the Big Four banks
Current average annual returns for default awards
Even if they don’t, people can still expect to lose out if underperforming retail funds have a greater stake in a landscape where industry funds have historically provided greater returns. One of the most consistent patterns of bad behaviour by the Big Four has been financial advisors encouraging people to sign up with bank-affiliated products in exchange for commissions, even when it’s not in the customer’s interest.
The culture of scandals is already beginning to take hold in the super sector, with the banks using lucrative inducement packages to lure employers into picking bank-affiliated super funds as the default choice for their workers – even when they underperform industry funds vetted by the Fair Work Commission. Westpac’s BT Financial Group has been taken to court by ASIC for cross-selling superannuation products to businesses that use other Westpac services. These kinds of practises doubled between 2011 and 2015, raising the risk that people will be signed up to super funds that don’t have their best interests at heart.