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BFCSA: Save our Super: IOOF calls out rivals on cash plays

Posted by on in ROYAL COMMISSION URGENT
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Save our Super: IOOF calls out rivals on cash plays

·         The Australian 12:00AM July 28, 2018

·         ANTHONY KLAN

 

EXCLUSIVE

One of the nation’s biggest financial services companies, the listed IOOF, says many of the largest retail superannuation providers have been fleecing the public of $50 million a year — $1 billion a year when accounting for compounding over a worker’s lifetime — by pocketing member returns on “cash” super ­investments.

In a report for financial advisers, IOOF describes in detail how many super “wrap” platforms — which are operated by “retail” or for-profit providers, the big four banks, AMP and IOOF for millions of Australians — gouge their own members by paying them returns on risk-free cash ­options that are a fraction of ­actual market rates.

IOOF, which operates a $26bn wrap super fund with 340,000 members, has also been paying members returns on cash investments substantially below actual market rates, according to analysts’ data. Over the five years to June 30, 2017, the average annual return on “cash” was about 2.2 per cent. However three IOOF super cash funds achieved average annual returns of 1.3 per cent in that time, according to respected super analyst SuperRatings.

The IOOF planner report, available on its website, says wrap platforms “use clients’ super cash accounts to generate profit for themselves at the expense of client returns”. The practice is “not acceptable” and “only serves the needs of wealth-management product providers”, it report says.

“This profit is achieved by paying a low rate of return on the member’s cash account” and the practice is “not understood by ­clients”.

Under the 1993 Superannuation Industry (Supervision) Act, super trustees must act in the best interests of members at all times.

The IOOF report, “Are your clients being short-changed on cash?”, states: “If we … overlay trustees’ obligations in relation to super, we find it challenging to understand how using the cash accounts of clients to subsidise other parts of the value chain or to generate excess profits can continue.”

IOOF managing director Christopher Kelaher and chairman George Venardos declined to comment yesterday.

Last month it was revealed almost 100 planners working for IOOF’s Bridges ­Financial Planners arm had written to Mr Kelaher and Mr Venardos attacking “inconceivable” and “unfathomable” moves by IOOF to raise already very high fees further, including by increasing fees on cash investments by one-third.

The IOOF report raises serious concerns for the chief executives and chairmen of the nation’s big four banks, with those banks all short-changing super members on cash investments.

Chairmen are required by law to ensure bank management and senior executives act legally and ethically in their dealings.

CBA chairman Catherine Livingstone, Westpac chairman Lindsay Maxsted, ANZ chairman David Gonski and NAB chairman Ken Henry refused to ­respond to written questions yesterday about the fleecing of cash super investments, and refused to comment when asked more than a week ago whether they believed trustee laws had been, and were being, broken by any senior executives of their banks.

The Australian is not suggesting any of these executives knowingly engaged in any wrongdoing.

The Weekend Australian revealed this process of short-changing on cash investments three months ago, prompting the Australian Prudential Regulation Authority to announce in May that it had launched an investigation into the practice. However it remains unclear what action, if any, the banking regulator has taken to stop the practice.

 

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