Is there no end to the stories of systemic abuse of the financial system by the banks?
This time it's a Fairfax media report that the big four banks are offering incentives for small to medium businesses to switch their default superannuation plans to the banks' higher-cost retail funds.
A recent survey conducted by UMR Research of 550 small to medium sized businesses (SMEs) has found evidence that the big four banks – Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corp (ASX: WBC) – breached the law by offering incentives such as free tickets to sporting events, lower insurance premiums, free financial advice and cheaper interest rates on business overdrafts.
The survey found 25% of SMEs had been approached by one of the big four about switching their employee's default super fund to the bank's own retail fund. 90% of respondents said they were persuaded to switch to their bank promoted super fund, or were considering making the switch.
According to the Superannuation Industry (Supervision) Act, super funds or their affiliates are prohibited from offering inducements or services to employers to win default fund business.
Industry fund lobby group Industry Super Australia, who commissioned the research, wrote to the regulators Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) requesting them to take action against the banks.
Superannuation is a hotly contested sector, given the $1.9 trillion invested in super, and billions more flowing in each year, thanks to compulsory as well as voluntary contributions. Retail funds, mostly owned or controlled by the big four banks and AMP Limited (ASX: AMP), want a larger slice of the industry, having just 5% of the default funds in industrial awards.
Industry super funds, mostly run as not-for-profit funds as opposed to the retail funds, are also under the spotlight, with concerns over some 'unusual' expenses paid by union-backed super funds.
Many Australians are complacent and lazy when it comes to selecting their super fund, with around 8 million of us opting for our employer's default fund, likely with no regard for the fees charged or performance delivered.
Add this to the concerns over conflicted financial advice – again controlled by the big four banks and AMP – and related scandals involving CBA, National Australia Bank and Macquarie Group Ltd (ASX: MQG) proves the current system is open to 'interpretation' and doesn't work as well as it should. Ethically, it should also be a concern for investors in the big four banks.
Clearly a better system is needed, one that doesn't contain the current conflicts, especially with the retirement welfare of thousands of Australians at risk. It remains to be seen whether the regulators and the government have the guts to take on the banks.
