The list of failures continues to grow, the list of official bodies too weak, too chummy, too lacking fire-in-the-belly to help the millions of Australians unknowingly stuck in under-performing superannuation funds.
The appalling track record of the gormless Australian Securities and Investments Commission is legendary.
The Australian Prudential Regulation Authority was exposed in the royal commission last week as being extraordinarily negligent, incapable of doing its job, sitting on its hands and looking out the window instead of using its powers to end malfeasance.
The government itself, until embarrassed by the royal commission, notoriously favoured the worst elements of the superannuation system and tried to prevent rudimentary reforms of the wealth management industry.
Now add to that list the Productivity Commission – a body that used to be regarded as the honest voice of policy reason among the noise of politics.
But when it comes to holding slack superannuation funds to account, the PC, along with ASIC and APRA, turns pussycat and treads softly.
Oh, the PC’s superannuation report in May generated headlines, “blowing up the default super system” according to the Australian Financial Review. Well, probably not.
What the PC certainly didn’t do is use the power it has to force those with their fingers in the $2.6 trillion lolly jar to disgorge the information they would prefer to keep secret.
As the commission’s report stated: “Questions [to super funds] focused on related party transactions in the Commission’s survey of funds received disconcertingly low response rates”.
So what did the PC do about that? Nothing beyond recording the fact that the super funds had pretty much ignored the PC’s questions. As any hack journalist could tell the commission, when an organisation pointedly ignores your questions, it’s a safe bet they have something to hide.
The PC’s lame note-to-self caught the eye and ire of former PC economist and present CEO of Lateral Economics, Nicholas Gruen. Dr Gruen asked on Twitter why the PC hadn’t used its Section 48 discovery powers. He kindly provided the relevant wording from the Productivity Commission Act.
Turns out you can be jailed for six months if you don’t give the commission the information or documents it requests – an excellent means of gaining someone’s attention, I would have thought.
Let me put this in a little context. The commission wasn’t inquiring into some arcane branch of protectionist theory, but the very real inefficiencies, abuse of trust and theft of money that has been occurring in parts of the superannuation industry. When it stumbled on something very suspicious, it made a diary note and ignored it.
It’s been left to the Ken Hayne royal commission to drag out examples of egregious related-party transactions when the PC had the ability to force the whole industry to fess up. Nah, too hard.
Dr Gruen has gone further in a stinging article he wrote for The Mandarin: “Behind the theatre of arms-length objective inquiry, there’s always been a rich ‘back-channel’ to the movers and shakers in the central agencies and their political masters. Indeed, when I was on the Commission this sometimes made Commission meetings confusing because the Chair sometimes abetted by the Executive Commissioner (the Deputy Chair in the current structure) and the Head of Office, would suddenly close down a line of argument for reasons that didn’t really make sense. I’d figure out later that the argument was inconvenient to a direction they’d determined in consultation with the Treasurer or the Treasury. This doesn’t mean the PC simply does what it’s told, but they’re invariably in close touch on the shaping of any important report.
“The finance inquiry seems to have been unusually influenced by the back-channel. The report on ‘finance’ (which excludes super) offers some fairly scathing comments about lack of competition in banking and financial advice but pretty tame remedies for doing much about it. However its report on superannuation seems more ambitious, at least when one considers the government’s priors which are to not let the industry funds go unpunished for embarrassing the retail funds with their superior returns.”
These are very serious allegations by one of Australia’s leading economists, someone with a respected track record in government. To paraphrase, I think he’s saying the Treasurer and Treasury are quietly nobbling the Productivity Commission, ASIC and APRA.
Dr Gruen made his own submission to the PC superannuation inquiry, a submission that got short shrift. While the PC recommended a collection of best-of-breed managers to act as default funds for superannuation, Dr Gruen believes the government itself would be best placed for that role.
He uses an appealing analogy between health care and wealth management.
“The more I think of finance, the more I think of health where in every country other than the US there’s an informed purchaser of expert services keeping costs down and quality acceptable,” he told me.
“Where you don’t have that, prices go through the roof whilst quality can often decline with over-servicing for everyone except those in the know. Same in finance except that in finance, as we’ve seen, over-servicing often takes the form of no service whatsoever.
“The idea that we want to empower everyone to be their own consumer of sophisticated financial services is not only wrong-headed. Just chat to the next person you meet in the street and you’ll understand it’s one of those ideas that Orwell said was ‘so absurd that only an intellectual could believe them’. It’s cruel and immoral.
“Only 60 per cent of Australians describe themselves as ‘comfortable’ in managing their money, and they’re talking about basic budgeting, not choosing between sophisticated investment offered by professionals working as salespeople who ply their wares as government licensed ‘advisers’.
“It produces entirely avoidable disasters. We don’t do it for health, do we? We just give people the option to manage things their way.
“Economics used to be what I call clarified common sense. Today it’s practitioners who spend most of their time staving off common sense.”