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The financial services industry can not always be trusted to negate its inherent    conflicts of interest, argues the University of Sydney’s MIKE RAFFERTY. In research recently completed for the AIST, Rafferty’s Workplace Research Centre found super members are best served by having their own direct representatives at    the decision-making table. Since the 1950s, the US dollar has carried the following official motto: In God We Trust. It may seem strange that god is invoked to give credibility to the world’s most used currency in a country that has a constitution that separates church and state.

This claim was largely Cold War rhetoric to contrast with those godless Russians. And at the time the US government also promised to keep its currency tied to gold. Today the link to gold is gone, and Communist Russia is no more, but the motto remains. Money is complex and in modern societies is based to a large degree on trust. It involves you trusting that the piece of paper you carry in your wallet will be redeemed for something useful and equivalent to the monetary value it bears.   

The same sort of trust applies to finance. It requires a high degree of trust    to hand over your savings to a bank    or to your super fund. We hope that savings institutions will look after our savings prudently so that when the time comes to withdraw those savings their value has been protected. But how is that trust established and protected? Savings institutions are generally regulated by governments to ensure that the people in charge of those institutions don’t run off with our money.   

But trust is more than just preventing theft. How do we also make sure banks and funds use our money wisely? In other words, how do we make sure they perform in our best interest? This is an even more difficult task than just preventing theft. Over the last two decades or so in Australia, we have attempted to answer this question by relying on disclosure and the market. By making institutions nominally compete for our savings, and requiring them to disclose their returns, governments have hoped that our self-interested actions will ensure that banks and super funds perform for us.

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