As ridiculous as it sounds, fee-for-no-service is now a recognised thing in the Australian financial services sector. I can’t get my head around it. Fee. For no service.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was established in December last year and in the last two weeks the focus has been on the A$2.6 trillion ($1.9 trillion) superannuation sector – the fourth-largest pot of pension money in the world.
The maxim fee-for-no-service is one of the gems to come out of the commission so far. It would be funny if it weren’t so appalling.
The royal commission has focused on the internal workings of superannuation funds and, refreshingly, has shone a light on the industry, creating clarity around some pretty basic issues.
The first week of superannuation hearings at the royal commission focused heavily on issues related to fees and whether they had been inappropriately or illegally deducted from members’ accounts.
In Australia, there are a number of different types of superannuation funds, including not-for-profit industry funds, corporate funds and retail funds, the latter of which are largely provided by the big banks. The royal commission has revealed some of the behaviours and activities in those banks to be downright wrong and possibly criminal.
Consumers have been deliberately misled, members of funds have been charged for advice and services they didn’t receive, and in an absolutely outrageous and horrifying act, dead people have been charged for services on an ongoing basis.
National Australia Bank is one of the big offenders. An Australian Securities and Investments Commission report found the bank to have been incorrectly charging fees since 2004. At the royal commission hearings, NAB executives were questioned about more than 100 potentially criminal breaches of superannuation laws.
AMP and the four big banks – NAB, ANZ Banking Group, Commonwealth Bank and Westpac – have agreed to refund more than $219 million to superannuation and wealth customers due to fees-for-no-service, primarily as a result of charging ongoing advice fees but failing to provide any general or personal advice.
The bank-owned superannuation funds aren’t the only ones that have been behaving inappropriately.
There are 113 MySuper products in Australia – these are Australian Prudential Regulation Authority-regulated superannuation funds – and mergers of funds for scale and member benefits has been on the agenda for years. But the commission heard that mergers between superannuation funds have failed specifically because of self-interest: trustees and executives not wanting to merge because there may not be a job for them in the new regime. Further, the commission heard that trustees have not undergone skills-based assessments as part of their appointment process and have clearly not been putting the interests of members first.
In his 1976 book The Unseen Revolution: How pension fund socialism came to America, management expert Peter Drucker warned of the potential abuse of power around large pools of money. He said the real danger was that large pools of assets could be highjacked by four groups: business, organised labour, government and the financial services industry. The latter group has clearly taken liberties in Australia.
All players in the superannuation ‘value’ chain have the privilege of managing other people’s money. And in Australia, superannuation is compulsory. Every working Australian, and every employer, must contribute to superannuation. So not only are members of funds putting faith and trust in the hands of those managing their money, they must do so.
Australia’s Governance Institute Ethics Index was released this week and, perhaps not surprisingly, financial services was the lowest-rated industry in the survey, with 55 per cent of respondents viewing it as unethical.
The Australian financial services sector has some work to do. Well, let’s face it, it has a lot of work to do.
Commissioner Kenneth Hayne, a former justice of the High Court of Australia, will hand down his interim report on September 30.
For more detailed stories on the royal commission, visit our sister publication Investment Magazine