Banks “bamboozling” customers with too many superannuation choices

The big banks are trying to “bamboozle” customers with too much choice of superannuation investments, Industry Super Australia (ISA) has argued.

In the latest salvo in the ongoing battle between industry and retail super funds, ISA says that “less is best” when it comes to investment choices in superannuation.

An analysis of ten years of APRA statistics by ISA shows that the best performing super funds are those with a main default investment option and a small number of other investment options.

“In contrast, the worst performing funds are public-offer, and mostly bank-owned, retail funds with hundreds of investment options,” said ISA.

According to the Options to Lose – how sales became choice report, ‘bank-owned’ – as ISA refers to them – retail super funds offer 651 investment options each on average, compared to 16 on average for industry super funds.

“Yet, independent SuperRatings figures show industry super funds have outperformed retail funds by an average of 2 per cent over 10 years.”

“Default options – where assets are professionally invested for the long term and pooled to access alternative asset classes, lower costs and other economies of scale – delivered higher returns for super fund members.”

“Sales techniques, slickly marketed as ‘choice’, seem to be designed to bamboozle consumers and certainly don’t appear to be improving super nest eggs,” said ISA public affairs director Matt Linden.

He said that most Australians don’t have the time to weigh up the hundreds of investment options in the “complex superannuation market”. According to ISA, in 2015, there were 28,000 investment options across all APRA-regulated super funds.

“Rational choice requires a deep understanding of fee, asset weightings, risk and return interactions,” said Mr Linden.

“Just as it does in private health insurance, sales-driven ‘choice’ in super is bamboozling Australian consumers.”

“This appears to be a deliberate business strategy to boost parent bank profits at the expense of fund member returns.”

“It appears for-profit funds are ‘clipping the ticket’ by capturing margins at multiple points of the investment chain including extracting fees when changing options”.

“This research reinforces the mismatch between the banks’ commercial objectives and the public policy objectives of compulsory super – which most Australians believe should be not-for-profit,” said Mr Linden.

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