Industry Super Australia says the major banks are ‘sidestepping’ financial advice laws to switch customers into underperforming super funds.
Research conducted by Roy Morgan found a 90% increase in superannuation switching advice from the big four banks, from 10% to 19%, between 2011 and 2015. Additionally, between 2011 and 2016, the big four banks increased their share of switched superannuation products by 41%, from 23.2% to 32.6%.
“Highly unusually, members are being switched out of funds with high net satisfaction and performance (often Industry Funds) into bank group funds with lower net satisfaction and performance,” says the report released by Industry Super Australia.
“The apparent flow of members from funds with better satisfaction and performance to inferior funds is alarming and not what we would expect in a competitive market with informed consumers.”
“It is irrational of consumers to do this so scrutiny is needed of the direct sales tactics employed.”
“The surveys suggest the bank owned super funds have sidestepped the FoFA protections on conflicted remuneration and best interest duty by using general advice and grandfathered ‘balanced scorecard’ bonus schemes to sell consumers lower quality super products.”
“Furthermore it is apparent that products that have higher levels of direct advice tend to obtain better net switching outcomes despite poorer performance and net satisfaction ratings.”
“Astonishingly, fund performance appears to have little to do with net switching outcomes with funds with relatively poorer performance and satisfaction able to gain more members than they lose.”
“These findings point to obvious market failure and urgent scrutiny is needed of the direct sales tactics employed by Australia’s banks that sidestep Future of Financial Advice (FoFA) protections,” said Mr David Whiteley, Chief Executive of Industry Super Australia.
“It is absurd that after nearly three decades of compulsory super, direct sales tactics by banks that leaves people worse off is still a feature of our national savings system,” he said.
Industry Super Australia (ISA) is calling for the introduction of a ‘better off’ test, which would require banks to demonstrate a customer will not be worse-off in a new fund compared to their existing super fund. ISA also calls for a prohibition on all sales incentives relating to superannuation.
“Equally the Government must restart the Fair Work Commission processes to build a merit based safety net of default funds for the estimated eight in ten Australians that rely on their employer’s choice of default fund,” said Mr Whiteley.
However the Australian Bankers’ Association (ABA) has labeled the claims by Industry Super Australia “ridiculous”.
“It is ridiculous to claim that the increase in major banks’ superannuation market share points to ‘obvious market failure’,” said ABA Executive Director for Retail Policy, Diane Tate.
“Industry super funds are competitors with banks. If only this was a campaign about doing the right thing by customers; but really it is just a competitive play,” she said.
“Banks have made significant investment to change their practices and systems to comply with the Future of Financial Advice laws, banning conflicted remuneration and introducing a best interest duty.”
“We also support new legislation to raise education, ethical and professional standards for all financial advisers.”
“We have also established an independent review into how banks pay staff and reward them for selling products and services,” said Ms Tate.