After almost a year of hearings and deliberations, the final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has now been released.
The report is a damning indictment on the banks and their super funds, financial advisers, insurance companies and mortgage brokers.
The super industry in Australia is enormous. Australia-wide, super accounts hold over $2.7 trillion.
Of that, Tasplan manages over $8 billion.
Over the years, some aspects of the super system have been subject to strong criticism, particularly in the area of fees and commissions.
As a key player in Australia’s financial system, the super sector wasn’t exempt from scrutiny of the Hayne Royal Commission, and nor should it have been.
Of the 76 separate recommendations made by Commissioner Hayne, a number directly concerned super.
In total, 24 cases involving misconduct by the banks and other for-profit entities have been referred to the regulators for possible criminal or civil charges. The Commissioner has also referred conduct involving some for-profit super funds to the regulators (APRA and ASIC), so they can consider whether to commence action under existing laws.
A strong theme of the Royal Commission Final Report is that regulators should do more to enforce existing laws and take stronger action against profit-driven entities that put the interests of shareholders ahead of their members.
It’s important to note that while Commissioner Hayne observed that, in almost every case, misconduct was driven by businesses pursuing profit and individual greed, the Commissioner didn’t recommend banning for-profit super funds.
From a consumer perspective, some of the key recommendations relating to super are:
Banning the hawking of super and insurance products;
That a person should only have one super fund;
Banning employer inducements (to nominate particular funds as default funds, or having employees join a particular fund);
Ensuring financial advisers who aren’t independent disclose this to clients in a prescribed format;
Banning grandfathered commissions which are attached to some bank and insurance-owned super funds;
The overhaul of bosses’ pay so that incentives are more aligned to non-financial risk; and,
An overhaul of the culture of the regulators.
The Commission also recommended:
Tightening the requirements for charging ongoing advice fees including requiring annual renewal and payment, as well as itemised disclosure of services the client is entitled to receive and fees;
Improved reference checking of financial advisers; and
A new, centralised disciplinary system for financial advisers.
There were also other recommendations relating to the management and regulation of super funds. The full report is available on the Royal Commission website.
It’s important to note that while both major political parties have agreed to act on the vast majority of the Commission’s recommendations, without legislation many of these recommendations can’t be implemented.
As such, any impact of the Royal Commission recommendations on super fund members is some way off. Moreover, most of the recommendations will have minimal impact on our members. For example, Tasplan is a not-for-profit fund, meaning that all profits are returned to members. In addition, Tasplan Super doesn’t pay commissions to financial advisers or use hawking to sell superannuation products.
In the meantime, I continue to encourage people to carefully check their superannuation accounts, and if in doubt about anything or you have questions about fees or commissions, don’t hesitate to contact your fund.