Industry superannuation says bank funds ‘bamboozle’ clients with choice | Australia news

Superannuation funds owned by the major banks are “bamboozling” customers with hundreds of investment options, yet generating poorer returns than their not-for-profit rivals, according to a new report.

Industry Super Australia (ISA) says analysis shows bank-owned super funds are offering 651 investment options each on average, compared with the not-for-profit industry fund average of 16 options each. ISA is run by the not-for-profit superannuation sector.

Despite the disparity in choice, bank-owned funds have underperformed industry super funds by 1.9% per year on average over the past 10 years, ISA says.

The finding can be found in the second of a series of papers ISA plans to release in coming weeks that tries to explain why bank-owned super funds and not-for-profit funds perform differently.

The second paper, Options to Lose: How “Sales” Became “Choice” and the Impact on Superannuation Returns, challenges claims that the proliferation of investment options by bank-owned super funds has been motivated by a concern for customers’ interests.

“For-profit funds have an interest in capturing margins at multiple points in the investment value chain including extracting fees when changing options,” the paper says.

“Maintaining sufficient liquidity to facilitate large volumes of investment-switching means retail funds are more likely to invest in highly-liquid asset classes for short time periods, foregoing investments in better performing, but less liquid, long-term assets such as infrastructure.”

Two months ago, ISA started a new TV advertising campaign against the bank-owned super funds warning workers about the banks’ lobbying efforts in Canberra.

Its ad began airing just days after the Australian Securities and Investments Commission released the findings of its review of the conduct of the financial advice arms of AMP, ANZ, CBA, NAB and Westpac, between January 2009 and June 2015.

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As a result of Asic’s probe, more than 1,300 customers were paid compensation for poor financial advice; 26 financial advisers employed by the banks and AMP were banned.

Meanwhile, the Turnbull government is still pushing ahead with plans to force all super funds – including not-for-profit default funds – to appoint an independent chair and fill a third of their board seats with independent directors, in a bid to make the industry more accountable and transparent.

David Whiteley, ISA’s chief executive, says the analysis shows funds with simplified product structures and fewer investment options produce better outcomes, even for financially literate members.

He said the proliferation of investment options by retail super funds, which is marketed as increasing “choice” for customers, seemed like a deliberate 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,” he said.

“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.”

ISA’s paper is based on analysis of 10-year Australia Prudential Regulation Authority (Apra) performance data.