THE DISTILLERY: Super rebuke

One commentator turns their eye to transparency in Australia's super industry and spots some major flaws.

The Australian superannuation system is the envy of all the world. All that wealth being handled by the private sector to pay for the retirements of millions of Australians, while the governments of Europe and the United States grapple with ‘entitlement issues’ for their increasingly out-of-work citizens. But while our system is stellar by comparison, it’s far from perfect. The Age’s Adele Ferguson and The Australian’s John Durie deliver pieces this morning explaining the terrible shortcomings of the superannuation industry regarding corporate governance and a lack of internal appetite for change, both in the wake of the embarrassing revelations from the corporate regulator that sound financial advice, in this retirement fund oasis, is hard to come by. Also, the Prime Minister’s pledge to take China to the World Trade Organisation if alleged discriminatory practises against Australian firms turn out to be true is shown to be all talk and no trousers, while the next Reserve Bank meeting is also on the agenda.

But first we start with The Age’s Adele Ferguson, who retraces the steps that led to the current uproar about corporate governance in the super industry, to then go on to explain just how much improvement is needed.

"Few super funds release details of how much they pay directors because they do not have to. Indeed, some super funds do not even bother to inform members who the directors are, how long they have been on the board, how many times they attend board meetings, or give details of their background. They are not required to provide members with the full set of audited accounts, unlike public companies, and they are not required to list when they buy or sell investments, whether they bought them at market price or sold them at a fire-sale price, or who the buyer was. In most cases trustees are appointed to the boards of industry funds and cannot be sacked no matter how incompetent the board might be, and if a super fund decides to merge with another, it does not have to get permission to do so from its members. This means members have no control over whether their fund is being merged with a fund with an inferior portfolio of assets.”

Second in this morning’s Distillery is The Australian’s John Durie, who endorses ASIC commissioner Peter Kell's response to claims from AMP’s Craig Mellor that the new Future of Financial Advice (FoFA) bill is a job killer. Kell argues that if the advisory industry actually provided good advice consistently, it’d create jobs.

"His comments are absolutely right and underline the extraordinarily self-serving nature of the debate, which portrays an industry that doesn't know how to help itself. Granted, there are some minor technical issues with the reforms. But in principle they are aimed at creating better, simpler service to clients, which you would think would be exactly what the industry wants. Medcraft said the fact only 20 per cent of people have a financial adviser and everyone thinks more financial advice would be good ‘tells you we have a problem here’.”

Meanwhile, The Australian’s economics correspondent David Uren says Prime Minister Julia Gillard’s threat to take China to the World Trade Organisation over alleged exclusion of Australian companies from Chinese resources contracts is an empty one. Uren points out that there’s little recourse built into the WTO to meet Gillard’s complaints, except perhaps one provision Australia should be familiar with.

"However, this was devised to deal with organisations such as the old Australian Wheat Board, which compulsorily bought the entire wheat crop and decided where it went and at what price. Australia hung on to the AWB for years in the teeth of WTO findings that it was illegal. Article 17 does not apply to sourcing for investment projects financed by Chinese state-owned enterprises. Whether Australian metals workshops are being excluded from resource projects has been a political issue since the partners in the Gorgon LNG plant awarded major tenders to Korean suppliers. The findings of the man appointed by the government to advocate for local steel suppliers, Colin Benjamin, found it was an impossible task, writing in his final report in 2010: "Australian companies simply do not have the ability to compete successfully for major fabrication projects because of cost and scale."

The Herald Sun’s Terry McCrann argues that the last interest rate cut from the Reserve Bank was done amid a strong possibility that banks would yield to their funding pressure and only cut by about 15 basis points. Now we have the situation where that pressure persists but the last 25 basis points were passed on in full, and now ANZ Bank has put some room between the first Tuesday of the month and its own rates decision.

"That could on the one hand encourage the RBA to cut, this time it would get its half-cut; it could equally persuade it that the inevitable firestorm would be counter-productive and outweigh the benefit of a marginal actual cut to borrowers. This makes a decision to leave rates unchanged even more deliciously pointed for the ANZ. I doubt that the other three banks would actually raise their rates in the wake of the RBA leaving the official rate unchanged, at least not this time. But if the ANZ was true to both its own arithmetic and its desire to separate its rate changes from the official decision, it would raise. All on its own.”

Returning to the lead in this morning’s Distillery for the rest of this morning’s business commentaries, Fairfax’s Ruth Williams shows just how poor the results were from a sweep by the Australian Securities and Investments Commission (ASIC) of the financial adviser industry.

In company news, Fairfax’s Peter Ker spots yet another signal that BHP Billiton didn’t time its foray into US shale gas particularly well, with American giant Chesapeake Energy cutting its drilling from $US3.1 billion ($2.96 billion) to just $US900 million). The Australian Financial Review’s Chanticleer columnist Tony Boyd takes us ringside to the fight for boardroom control at RCL Group, the last remaining fragments of Babcock & Brown.

The Australian’s Scott Murdoch waded through the International Monetary Fund’s discussion paper on the global banking system and found a curious comparison between the Australian banking system and that of Ireland. The columnist reserves some scepticism.

On economic matters, The Australian Financial Review’s Alan Mitchell urges Prime Minister Julia Gillard to take up a reform agenda with the global economy looking shakier and shakier while Australia props up industries – steel and car – that are unsustainable.

And finally, Fairfax’s Peter Cai finds a pretty stinging criticism of the three big ratings agencies from China’s central bank governor Zhou Xiaochuan.

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