Just Super! It is the most expensive financial scandal in Australia.

Warren Buffett famously said: “It’s only when the tide goes out that you get to see those who have been swimming naked”  Why do we fail to check the facts when we think we’re making money.

‘The facts behind the scandal

  • Retail funds pay commision to advisors
  • They have missed $50bn in growth
  • Calls for reforms grow louder

    Retail superannuation funds miss out on $50bn in growth because of poor management, high fees

    IT is the most expensive financial scandal in Australia.

    Retail super funds – usually recommended by financial planners because of their generous commissions – have missed out on $50 billion of investment growth in the past 12 years.

    Research from Industry Super Network (ISN), the super trade body, has revealed that poor investment management, high fees and commissions paid to financial planners has reduced the investment returns on retail super funds by a staggering $20 billion in the past year alone.

    The report, called Australia’s Lost Savings, was written by ISN and reviewed by the University of Canberra using average super fund performance data going back to 1997.

    ISN boss David Whitely is now calling on the Federal Government to reform the financial advice system so that finance planners are forced to act in their clients’ best interests, and not promote products that pay the highest commissions.

    “It is one of the great injustices of our time,” Mr Whitely said. “The current system legitimises financial incentives to salesmen who have no legal obligation to act in our best interests.”

    Under existing regulations, planners have to give only advice that is “appropriate”.

    “That gives far too much leeway for planners and offers insufficient protection for investors,” said Mr White”

    Another Howard Government failure? Over to you.

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    37 Responses

    1. I remember thinking when super was introduced that it would just become another industry for the parasites to suck from so I am not surprised.

      This is nothing compared to what will happen after carbon trading is introduced…mark my words.

    2. The figures are staggering

    3. Scaper, I’m not much up the carbon trading scheme and it’s economic/financial implications. Any info would be appreciated.

    4. ‘I remember thinking when super was introduced that it would become another industry for the parasites to suck from so I am not surprised’ – Scaper

      Too true Scaper. Keating partly to blame, although I am very much in favour of compulsory super contributions.
      Former ‘financial adviser’ friend, female, parasite, does no longer maintain ‘friend’ status, on my terms. Sad. Parasites indeed.

    5. Keating may be partly to blame but it was the Howard Government who were hell bent on allowing the banking and financial sector operate with the minimum of regulatory oversight.

    6. Watch in 2009 and ask yourself what the Howard Government have done to prevent this (refer below), as an example? It proves to me that the Howard Government have supported a free market stance where it was thought best to play a “hands off” role. Now we’re all paying for this period of ignorance.

      Big banks ignored loan risk warning
      http://www.theaustralian.news.com.au/story/0,25197,24766297-5013404,00.html
      Sean Parnell, FOI editor | December 08, 2008

      AUSTRALIA’S biggest banks were “relaxed” about the high number of mortgage defaults in western Sydney and “sanguine” about the quality of secured housing stock, according to Reserve Bank accounts of confidential meetings with the lenders.

      Despite warnings from regulators to be more careful when lending money, the big banks persevered with low-document loans and high loan-to-value ratios – even as the number of customers in arrears increased – to see off competition from smaller lenders.

      While their rivals might once have taken the biggest risks and therefore had the highest arrears rates, the big banks tried to ride the property boom to build their market share.

      As a result, one of the big five banks recently conceded it had a substantially higher arrears rate than normal, as regulators warned the number of problem housing loans nationwide could triple.

      Documents obtained by The Australian using Freedom of Information laws give a new insight into the attitude of banks and regulators when customers began defaulting on their loans, first because of rising interest rates and then because of the global economic crisis.

      The regulators have long been worried that increased competition, and a decline in lending standards, would have dire consequences. Australian Prudential Regulation Authority chairman John Laker even gave a speech in June last year insisting he was not crying wolf when he demanded lenders be careful.

      But the big banks took even greater risks with non-standard loans in the last six months of last year – ignoring the sub-prime crisis in the US and rising interest rates at home – to compete with other lenders. But as the rate of customers in arrears rose, the banks appeared unconcerned.”

    7. You make an interesting point John on matters regulatory. I would have thought the Fed Government may have laid claim to part of super contributions, by law, on the basis that it (the gov) paid dividends equal to the going treasury bond rate, with minimal administrative fees, if any, as the fund may have been used by the gov for reasonable infrastructure programmes and other perhaps profitable purposes.
      Like, say, lets buy back Telstra, first up.

    8. A peoples bank, utilise the Future Fund for the developmemt of this nation!

    9. No I have to give Howard some due on this one.

      For a while I was in the retail industry coming off a hospitality industry job. I really liked my hospitality industry super (HOST) and hated the one I was forced to go to by the large retail company that employed me because of the reasons given in this post, poor returns and huge fees as compared to HOST.

      Anyway it was Howard who bought in legislation that allowed choice of super no matter what job or industry you were in. I jumped back onto HOST immediately. That provision of choice was a large oversight by Keating.

    10. I warned people for years that the Super system was part of the GREAT CON. The foundations are unstable…in America much of the foundations are no more real than a hologram. And still many of the CON ARTISTS are profiteering & using political contacts to escape THE WRATH of the people A lack of appropriate JUSTICE when it comes to these CORRUPT BIG WIGS will only drive us down the road to riots, increased crime & authoritarian rule.

      A society that allows the CON ARTISTS to continually give it the middle finger is a society that feeds its children lies & deceit…& can expect no less from them.

      When TRUST is allowed to wither because of gutlessness & ambition on the part of those we elected then soon we begin to wonder why we bother following the rules…when those who rule us apparently have no interest in doing so.

      Too easy to whip the so called “do-gooders”…the environmentalists, educators, vegetarians/vegans, anti-warists…stick it to the gay community…so easy to turn an unimaginative public against libertarians concerned about the health of a Democracy…and put the boot into those who REALLY care about preserving life…much less of an effort to to make yourself look the STRONG LEADERS by sucking up to the evil press & calling on the prejudices & biases of a too oft ignorant & knee-jerk public.

      And so the foundations vanish & crumble…& the sordid game is revealed for all to see:

      http://www.informationclearinghouse.info/article21502.htm

      (Scorched Earth: By David Glenn Cox)

      N’

    11. Yes the provision of choice was down to Howard who thought it would weaken the unions grip on super funds.

    12. Nothing is new – Egypt

      The Rober Barons live…and prosper…

      …and the 13 families still control the world…

      http://www.book-of-thoth.com/archives-printpage-3278.html

      Sharpen your scythes (for the Controllers have removed any other weapons…{In less than 20 minutes at this and five other crime scenes, the marksman killed 35, injured 22, and crippled two cars with only 64 shots} this is a near impossible task for a well trained “squad” of militarily trained special ops soldiers let alone a single teenager with limited access to firearms – how many times did JWH lie to the nation?)…

      …and grease the tumbrills…its back again…

      …and strange that the only superannuation organisatioons that do consistently well are industry funds – including funds like Sunsuper that cater for the self employed…

      …still waiting for the reulation revolution Mr Rudd and Mr Turnbull…waiting, waiting, waiting…

      …nothing changes…

    13. Hi TB…how was the shindig?

      The ETS will be the new muel for the parasites to feast on…regulation, distribution and market dertermination on pricing will be the method of control.

    14. 11. Nature 5 | December 21, 2008 at 3:57 pm

      True the reason was nefarious but the side effect was good.

    15. I’m struggling to work out what the author of this post (it sounds like John Mc, but it wasn’t signed) objects to. Is it that financial planners are paid commission? Or that super funds returned sub-standard returns? Please clarify.

    16. 16. Tony of South Yarra |

      Both! Have another read!

      14. scaper

      Fabulous as usual – “Darling Buds of May”

      BTW thanks for the rap re singing to IATW (the cheques in the mail… 😆 )

      Money, Money, Money (translation – Greedy, Greedy, Greedy)

    17. Tony

      For starter the incentive structure is corrupt.

      “It is one of the great injustices of our time,” Mr Whitely said. “The current system legitimises financial incentives to salesmen who have no legal obligation to act in our best interests.”

      Under existing regulations, planners have to give only advice that is “appropriate”.

      “That gives far too much leeway for planners and offers insufficient protection for investors,” said Mr White”

    18. Tony

      And secondly, they’ve performed poorly in comparison to other funds because of corrupt incentives and poor management.

    19. ISN boss David Whitely is now calling on the Federal Government to reform the financial advice system so that finance planners are forced to act in their clients’ best interests, and not promote products that pay the highest commissions.

      That sounds fair enough, as long as those seeking the advice of a financial planners are willing to pay the equivalent of the super funds’ commissions. (If not, bear in mind that you will get monkeys for your peanuts.)

      Otherwise, you can do what I did, and set up your own super fund. That way you have no-one to blame – or congratulate – for your fund’s performance but yourself.

    20. 20. Tony of South Yarra

      My only problem the suggested reform is that (as this post demonstrates) it still closes the gate AFTER the horse has bolted…

      …as for DIY funds – you are talking about people who can’t manage, managed funds…never assume people have the same knowledge as you, ToSY…

      …FYI my super is with Sunsuper (over 1 million members) and charges far less than retail funds – $1.30 to 1.80 per week and financial “advice” is free – financial “plans” attract a fee…and only does two things – super and self funded pensions…

      …best financial advice for ANYONE is at Centrelink…and its FREE…what a society, PAY for mediocre service and then complain when its too late…and its free down the road…mmmm

      (Note: Apologies for some of my atrocious spelling just lately – I just can’t type quickly enough and I keep getting sprung by The Minister when I should be cutting up hams, or putting up strings for cards or decorations or whatever – ’tis the season to be jolly {or something!})…Ho! Ho! Ho!

    21. TB

      DIY super funds are available to everyone (setup costs are not much more than 12 months fees for an industry fund) and, believe me, it’s not that hard to do better than the ‘professionals’ – even if you hadn’t cashed-up before the GFC (as you and JMc were suggesting).

    22. Tony

      I know about DIY, after 45 years in the workforce, I’m RETIRED, I don’t want to f#ck about managing my super (although I still do with my fund to some extent) as my mate/neighbour does with his DIY(the man’s become a wreck!) …

      ‘frinstance my cousin and his wife in England receive a government pension of about 6% each…The Minister’s cousins in Holland receive just a bit more…

      …pretty cruel government here, that lets retirees and pensioners loose on the open market…(are you reading this Mr Rudd??) and strangely enough, Australia’s system of superannuation is held up as a model by international banking systems – WOW! – what a way to screw the the older, weaker, peasants and serfs of our “community” just more “cannon fodder”…if ya can’t get ’em shot for your personal gain just take their money off ’em so they’ll tell their kids – listen to the Controllers thye know best…BS!

      ..wake up, look around and stop thinking ME, ME, ME…start thinking – CARE, my mum/dad, other people, children, ….

    23. Tony

      There are so many people who are not savvy when it comes to investing super and it is the responsible of financial planners to help direct them into making investment decisions.

      The benefit in this case was not in the best interests of their fee paying clients.

      Throughout the late 1990’s it was found that analysts form investment banks were recommending dud stocks to investors simple because their firms received had lucrative commissions for doing so as well as the promise of future fees for any acquisitions these companies were going to make.

      Much of this come undone when the stock market crashed in 2000. Similarly, investment banks were largely responsible for the current debacle.

      In fact, if you look at any fraudulent behaviour you’ll usually find a conflict of interest where one party is misled into believing they are receiving a ‘good deal’ and/or sound information, when, in fact, they’re being led down a path that will ultimately cost them whilst benefiting those who misled them.

      In simple terms ‘it’s a scam.

      Galbraith nailed the major problem that often rears it’s head during and after a crash: “In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. there is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in – or more precisely not in – the country’s business and banks. This inventory – it should be called the bezzle. It also varies in size with the business cycle.” Some things never change as this was an observation of the fallout from 1929 crash.

    24. Excuse the grammar – it’s a bit all over the place but I’m sure you get my meaning.

    25. Nature 5 @11 – “Yes the provision of choice was down to Howard who thought it would weaken the unions grip on super funds.”

      Look, I think we all agree that politicians are political in their behaviour and decision making. It isn’t peculiar to one side or the other.

      The leverage applied by unions to investment decisions is hardly in the interests of those that contribute.

    26. I lived in the US for a several years, and for much of that time worked for a company providing independent personalized software-based long-term financial advice. The company started out advising on the US 401(k), something approximating their closest equivalent of our superannuation, (although 401(k) participation is voluntary), and branched out to other types of investments. Typically the company’s services were purchased on behalf of employers who had engaged a “401(k) provider” to offer employees various investment options (a bit like a wrap account here, but don’t push the analogy too hard). Those employers were often concerned about their own legal liability if the investments did poorly (and the employers had in some way, whether deliberate or not, influenced the employee’s investment decisions inappropriately for that employee’s circumstances). Others were concerned because roughly 90% of their employees never made an active decision and simply went for the default investment amount and option, an option that – due to varying individual situations – could not be good for everyone.

      This experience suggests that DIY will never address more than a small portion of the market (as does research showing that most people make poor short-term investment choices because – for one thing – they over-react and react too emotionally to short term market movements).

      However the service we offered was able to show people the small number of parameters under their control – and what the likely range of outcomes they might experience for any setting of those parameters. This led a significant number of employees to get more involved with their investment parameters – and in a lot of cases to take more risk (which over long time horizons led to better retirement outcomes, as the default investment options for many 401(k) plans were very low risk…)

      Interestingly, the models we built tended to show that with few exceptions, the idiosyncracies of any particular mutual fund’s investment strategy did not outperform the market in general once the fees were taken into account, and thus that a low-fee index fund was often a desirable part of the portfolio.

      And when I returned to Australia and attended the initial seminar on my new employer’s super fund provider, I was horrified at the fee levels – even after a significant discount due to the size of our particular plan. I leave as an exercise to the reader to combine that observation with the ones of the previous paragraph…

    27. “The leverage applied by unions to investment decisions is hardly in the interests of those that contribute.”

      Can’t disagree with that. But I see no evidence that industry super funds are subject to undue union influence. Perhaps one should get the opinion of Garry Weaven who will apparent;y retire and “write poetry and play golf,”

      http://www.theage.com.au/news/business/industry-super-fund-leader-to-retire/2005/08/12/1123353502306.html

      No mention that he might buy a 4X4 and see the real Australia, but then what would you expect from a ‘union hack’.

      Personally. I find Weaven an interesting character. More relationships and conquests than anyone I can think of and always keen to boast about same.

    28. Lotharsson

      …and thus that a low-fee index fund was often a desirable part of the portfolio.

      I certainly agree on this point and given the significant drop in the market (which may still have some way to go yet) still looks like one of the best options over the long term.

      The level of fees and commissions in the case cited is an absolute disgrace.

    29. I would really like to know what the Cairns taxi driver thinks about all this

    30. #26. Tom of Melbourne | December 21, 2008 at 10:23 pm

      The leverage applied by unions to investment decisions is hardly in the interests of those that contribute.

      What leverage have they applied?

    31. Nature 5 – Gary Weaven is hardly a “union hack”. Far too smart for that, also far too smart driving around hot, dusty roads in an environmentally unfriendly 4×4, looking only at scrub for days on end.

      Mind you, golf is only marginally less punishing.

      As for poetry, I’d certainly prefer to just open a thesaurus at random and read. It is more informative, and less boring.

    32. Adrian, in looking at some greenfields investments, some of the union funds have made particular enquires about union membership, a little leverage.

    33. Neil@30 LOL I knew you had a sense of humour. Good one.

    34. I do not know what the solution regarding bad or biased professional advice is concerned. The banks are still up to their tricks. National phoned the other day & offered to finance a new work vehicle. Unsolicited. Told him I did not need or want any more vehicles but an extra line of credit for a work project in the pipeline would be helpfull. Sorry. Can’t help you.
      I do not have faith in regulations either. The regulations we already have do not seem to help. My pet hate is The QBSA. All it does is collect millions of dollars per year off contractors while offering scant protection for either contractors, sub contractors or the public. Even the law of the land repeatedly lets us down in. All in all, very depressing.

    35. John McPhilbin @ 29

      Part of the shock on returning to Australia was the cost of index funds (separate from any super account management or wrap fees or advice or whatever else the middlemen charge). In the US the Vanguard group were offering several funds at something like 19 basis points per year. Here I recall fees being something like 5 times that level (although admittedly the US has the advantage of market scale and volume). I haven’t looked lately here so they may have edged downwards.

    36. Carlyle, I like the latest money grab by the QBSA…got to have a licenced supervisor on each site!

      I have been licenced for over fifteen years now and have seen so many cases of cowboys getting away with what the BSA was originally set up to achieve!

      Here is a classic…last year someone got me in to do a quote to basically rip the whole lot up and redo it…$35,000 worth of work.

      I asked the client if she has contacted the BSA and she replied with yes I did but because the person that built this mess was not licenced they could not take any action.

      If this was the case then WTF is the BSA’s function apart from revenue raising!!!

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