It’s perhaps a stretch to include Steve Bannon, the former adviser to President Trump, in an article about how Australian financial institutions should keep their clients fully informed and reimbursed where necessary, but the local institutions appear to have been following his guidance.
I’m talking about the storm of words they put out for the supposed benefit of superannuation product holders, and the lack of clear, itemised explanations those words give clients about the fees they are paying.
On one occasion, Bannon advised his then-friend Trump to “flood the zone with sh*t”, in reference to how Trump should fight off and derail the Mueller inquiry into Russian interference with the 2016 presidential election.
Now we’ve had days of senior National Australia Bank executives or super trustees squirming at the Hayne royal commission over why it has taken them so long to refund clients fees they should never have been charged.
That’s as it should be. It looks awful because it is awful that NAB took almost a year between 2016 and 2017 to work out how to reimburse about $87 million in unjustified “plan service fees” that had been charged to about 220,000 clients.
It’s clear NAB’s wealth arm was looking for any way it could to justify having levied those charges in the first place.
On the second day of hearings in Melbourne, on Tuesday, superannuation trustee NULIS Nominees’ Nicole Smith agreed that the process should have been faster, but disagreed with counsel assisting Michael Hodge that management of the administrator was “hopelessly conflicted”.
“I believe they are in a conflicted position, I don’t agree that it’s hopelessly conflicted,” she said.
Perhaps I should modify the Bannon remark to “flood the zone with delays” for local purposes, which isn’t quite so arresting, but I believe there is a parallel.
There is an underlying problem in superannuation in Australia – clients have been getting too much of the wrong information.
To some extent, I blame Joe Hockey’s Financial Services Reform Act 2001, which concluded over 600 pages that the most transparent approach to explanation was to tell the clients everything.
The road to hell is paved with good intentions, and that one was an eight-lane freeway.
We all know that only a tiny percentage of people read long documents, even if they are explaining how your superannuation is going. It’s a painful reality.
A further complication has been that every attempt to simplify superannuation has had the unfortunate side effect of reducing savers’ sense of engagement.
That’s a harder one to fix but a clear explanation of charges and fees is more likely to be read than any long document.
Part of the problem is that you could argue those long documents (thanks, Joe) are really designed not to be read. In the worst cases, such as the notorious Dover Financial we were hearing about at the commission back in April, principal Terry McMaster admitted that a “client protection” policy was designed to protect his advisers from their clients, rather than vice versa. It was then that he fainted.
So, what to do? It should not be beyond the wit of our regulators to oversee a comprehensible system whereby financial product clients are told what they are being charged, and why. It’s not complicated.
And if clients have the right to opt out of any of those charges, they should be told, in letters of fire. NAB/MLC was caught out on that one this week, revealing that clients had the right to stop paying a fee without any adverse consequences but the clients weren’t told. That’s just sneaky.
A final point. While it’s understandable that there has been a sharp focus on fees, justified and unjustified, let’s just remember that it’s net returns that matter in the long run. I see no problem with net returns appearing close to the List of Charges.
Given that trust in our financial institutions is running at an all-time low because of these bits of sneaky behaviour, now’s the time to act.