Market that inspired CRM2 now in the hot seat

Market that inspired CRM2 now in the hot seat

Market that inspired CRM2 now in the hot seat A new report from an Australian research firm suggests that four biggest banks down under generate almost $10 billion in fees from superannuation funds, the backbone of the Australian pension system.
Transparency is a key issue at the four banks in question who generate 33% of all the fees charged superannuation clients. That doesn’t sit well with some of the superannuation players in Australia.

“Fees are being generated a number of ways by the vertically-integrated wealth management arms of the banks, including platform superannuation, funds management, financial advice, group insurance and asset consultancy,” said David Whiteley, Chief Executive of Industry Super Australia in a press release earlier this week. “However these services are carried out within the banks’ conglomerates with very little or no transparency. Compulsory superannuation is a foundation of our retirement income system, it should never be a honey pot for the big four banks.”

CRM2 implementation is to be completed by July 2016; the changes are expected to shine a light on all wealth management businesses here in Canada – and not just the banks. Transparency of fees and client performance as well as full disclosure of compensation are key reforms in the latest regulatory change.

While the banks don’t appear to have cornered the market when it comes to wealth management fees in this country, the comments from Super Australia’s CEO do provide a healthy dose of skepticism when it comes to investor advocates looking to clean up the industry. Clearly, not everything in Australia has worked to the benefit of its investors despite the best of intentions.

"Parliamentarians need to crack open the opaque structures of these vertically-integrated business units and subsidiaries and reassure the public that the banks are in fact prioritising the interests of super fund members before profits, as required by their fiduciary obligations,” Whitely said. "In the face of numerous scandals and financial loss to their customers, it is not credible that the wealth management divisions of the banks want to improve governance in superannuation.”

Investor advocates often use Australia and the UK as examples where there’s been successful financial reform. Many want us to follow down the same path. In the bigger picture they might be right but when you look at the banks’ stranglehold on the wealth management business in most developed countries the model is generally the same – divide and conquer.

Independent advisors are bound to point to these results as evidence that ceding more power to the banks is a bad thing.
  • David Atwood 2015-10-15 10:24:17 AM
    While banks in Australia and Canada are large beneficiaries of the management fees generated on money products, the new disclosure obligations are intended for the protection of consumers. The decision to focus on advisor compensation only and not the management expense to the investor has the potential to favor manufacturer/distributors and it is sure undermine confidence and lead to greater confusion as advisors are tasked with explaining the difference.
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  • Gerald Curtis 2015-10-15 11:38:33 AM
    Seems all is not well in investor paradise ;)
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  • Barb Amsden 2015-10-15 11:42:05 AM
    Interesting article - defined contribution plans in Canada - I don't think they are subject to CRM2 disclosure. Hmm.
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