Super war: Are big banks poaching super customers?

Industry Super Australia has accused major banks of sidestepping laws to switch tens of thousands of customers into “poorly performing super products”.

It is the latest blow-up in Australia’s fierce super war between industry and retail super funds.

Industry Super Australia has reported that the big four banks have switched tens of thousands of customers into super funds with lower satisfaction and performance.

The representative body said the banks have done this by ramping up direct advice sales channels which bypass laws that require them to act in customers’ best interests.

These accusations are based on Industry Super Australia’s analysis of new Roy Morgan Research which revealed direct super sales advice from the big four banks had doubled between 2011 and 2015.

This corresponded with a 40 percent increase in the big four bank’s super switching market share.

“These findings point to obvious market failure…”

Industry Super Australia also said the Roy Morgan Research demonstrated that customers are being switched from funds with higher net satisfaction and performance into funds with lower satisfaction and performance.

Chief Executive of Industry Super Australia, David Whiteley said this apparent flow to bank-owned funds is not what they expect in a competitive market with informed customers.

“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,” he said.

“The figures show direct advice is growing quickly and at the expense of traditional channels including financial advisers.

“General advice direct from a bank does not need to meet the best interest obligations and it is likely the banks are using this and linked sales incentives to funnel customers into underperforming funds.”


Calls for Government Intervention

Mr Whiteley also made calls for the Government to intervene, saying this behaviour from the banks doesn’t match up with the policy imperatives of compulsory superannuation.

This is what Mr Whitely argued for:

  • A better off test: “Such a test would require banks to demonstrate that when they switch a member into a super fund, they will not be worse-off compared to their existing super fund.”

 

  • Restart the Fair Work Commision 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.”

 

  • A prohibition on all sales incentives relating to superannuation

“Policy makers have a moral and economic imperative to protect the super savings of millions of Australians from the cross-selling by banks,” he said.

“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.”

Financial Services Council hits back at Industry Super

In response to the Roy Morgan report, the Financial Services Council (which represents retail super funds) told Fairfax Industry Super Australia should not be afraid of competition.

“This report is polling, not research,” Financial Services Council chief executive Sally Loane said.

“No section of the economy, not least the almost $10 billion protected default superannuation market dominated by industry super funds should fear competition.”

On the same day Industry Super Australia published their media release calling out the banks, Sally Loane had an opinion piece published in The Australian calling for the Government to tear down protectionist fences that benefit industry super funds.

In the article, Ms Loane argues Australia’s superannuation system is too important for consumers for it to be “enmeshed in the industrial system”.

“Consumers who have free choice in every other facet of their financial lives should be allowed to choose a super fund on merit, not based on whether a trade union, and the industry fund it owns, has coverage over an industrial award,” she wrote.

“Old-fashioned protectionist fences around super savings — the unions’ “secure funding model” — have no place in a country that rightly takes pride in creating one of the most competitive modern market economies.

“The tide must finally turn in favour of competition in the superannuation market.”

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