Thursday, October 20, 2016

Bank owned super funds accused of gouging by delaying switch to default schemes

Banks are being accused of gouging customers by delaying the transfer of superannuation accounts into lower cost default superannuation funds.

Under new rules, retail funds have been given four years to switch accounts nominated as "default" into cheaper My Super products with a deadline of 1 July 2017.

But research out today suggests bank-owned funds are dragging their feet by leaving default super in high cost legacy funds for as long as possible.

A study by Rainmaker Information commissioned by Industry Super Australia says banks are profiting by between $800 million and $1.8 billion in fees by stringing out the transition to approve default funds.

Rainmaker says given the aim of MySuper is to provide a default option for "disengaged passive members", the motivation of bank-owned funds need to be examined.

"The core question is to what extent have funds expedited this transition," the research suggests.

"This question is crucial because Rainmaker's annual superannuation fee surveys have revealed that MySuper products are on average 30% cheaper than regular corporate retail solutions.

"So the sooner members transition across to these lower cost products the sooner they start saving fees."

Industry Super Australia chief executive David Whiteley told the ABC's AM program the behaviour of bank-owned and retail funds was "unconscionable" and undermined public confidence in the compulsory superannuation system

"The retail and bank-owned super fund practice of leaving members' accounts languishing in more expensive legacy products requires greater scrutiny," Mr Whiteley said.

"The regulator would do well to ask if the product trustees are fulfilling their legal duties to put the interests of members over profits generated by wealth businesses inside the banks."

The research shows that although not for profit funds completed the transfers to MySuper by June 2014, retail funds are lagging with just 43 percent of funds switched by June 2016.

The Financial Services Council, which represents bank-owned and retail funds, maintains there is a clear timeline for the transfer to default funds.

FSC director of policy Andrew Bragg told the ABC that all existing money in the default super system must be transferred by June next year under longstanding legislation.

However, Mr Bragg said more competition was required as recommended by reviews conducted by Jeremy Cooper in 2010 and David Murray in 2014.

"Until there is competition for the $10 billion default contributions each year, MySuper will be an unfinished reform, " Mr Bragg said

Tuesday, October 18, 2016

RBA governor Philip Lowe warns Trump victory would not be a "benign event" for world

The governor of the Reserve Bank says the election of Donald Trump as US president would not be a "benign event" for the global economy.

Dr Philip Lowe says while there is no specific scenario planning for an increasingly unlikely Trump victory, the RBA prepares for events that could rock financial markets.

In his first official speech as RBA governor, Dr Lowe said the rise of protectionism was at the top of a list that was making him more worried.

Listen to the story here

Read the story here

Regulator puts banks, insurers on notice over risk culture

The prudential regulator has put banks and insurance companies on notice to improve their risk culture or face "greater supervisory intensity".

The Australian Prudential Regulation Authority (APRA) says the financial sector needs to pay greater attention to risk, warning that many institutions are "grappling" with how to best improve their risk management.

In an information paper released this afternoon, ARPA chairman Wayne Byres told institutions the regulator would step up surveillance if needed.

"APRA cannot regulate sound risk culture into existence," Mr Byres said.

"However, APRA will apply greater supervisory intensity to institutions that are either unwilling or unable to address behaviours that are inconsistent with prudent risk management practices."

APRA will also review the remuneration policies and practices of institutions it supervises to determine what role salary and incentives play in risk culture.

The information paper describes remuneration frameworks as "important barometers and influencers of risk culture."

The review will also examine the arrangements and outcomes for some senior executives and "material risk takers" at a sample of financial institutions.

APRA's review comes as co-regulators like ASIC (Australian Securities & Investments Commission) investigate banks and insurers over alleged unethical or unlawful banking behaviour.

Last week, ASIC released a report on the life insurance industry showing a high level of rejected claims for total and permanent disability (TPD) and trauma.

ASIC is also investigating the scandal at the Commonwealth Bank's insurance arm CommInsure as revealed by an ABC Fairfax investigation.

The chief executives from the major banks were grilled by a parliamentary committee a fortnight ago as the federal government continues to rebuff calls for a Royal Commission into the banking sector.

Thursday, October 13, 2016

Brexit, Trump not concerns in Henderson Janus funds merger negotiations, says Andrew Formica

Henderson Group chief executive Andrew Formica has shrugged off concerns about Brexit and Donald Trump as he sells a multibillion dollar merger with the US funds giant Janus to investors.

Speaking in Sydney, Mr Formica told The World Today he is more concerned about tighter regulation of funds in the wake of the global financial crisis than Britain leaving the European Union, the rise of Donald Trump and the falling British pound.

The merger, which is subject to investor and regulatory approval, will create a US$6 billion company and between them Henderson and Janus will have US$320 billion of assets under management.

"The discussion on Brexit is not really relevant to this deal in the sense that conversations (about the merger) started back in February and carried on prior to the vote," Mr Formica said.

"They weren't influenced by Brexit, they weren't accelerated or decelerated by Brexit. We're looking at something that you judge on a ten to 15 year view and discussions around the EU and the UK really will be a drop in the ocean."

Mr Formica is in Australia with proposed co-chief executive Dick Weil from Janus to promote the proposed deal to investors and institutions.

Both will head Janus Henderson Global Investors in a deal billed as "a merger of equals".

Mr Formica also said he was unconcerned about the falling value of the British pound against the US dollar and that the Brexit fallout did change the terms or rationale of the merger.

"Regardless of what form the UK takes in Europe going forward, the UK market will be a large market for us as a firm as will Europe," Mr Formica said.

"What's happening with the pound, what's happening with the UK economy was less relevant to this. So being a truly global business helps us diversify against any one market or risk."

While Janus has deep exposure in the United States, Mr Formica is similarly unconcerned about Donald Trump tilt for the White House and that his threat to unwind trade agreements could destabilise financial markets.

"Yeah, that was a concern but at the end of the day, again we see on the longer view that it won't have much of an impact."

Despite the relaxed comments about Brexit and Donald Trump, the merger is important for both Henderson and Janus given anticipated cost savings of US$110 million per year.

The Henderson Janus merger is seen as a possible prelude to similar marriages in a world of low interest rates and slowing growth.

However, Mr Formica says while it makes sense for Henderson and Janus, it might not necessarily work for competitors.

"The industrial logic of doing this makes a lot of sense and you could argue that other firms should do the same," Mr Formica said.

"But their ability to actually do it and bring it to fruition would be challenged."

Fed minutes show division but point towards December rate rise

The likelihood of the first US interest rate rise in a year has slightly strengthened after a number of Federal Reserve voting members said a hike would be justified "relatively soon".

With markets factoring in as much as a 70 percent chance of a December rate hike, several members noted higher rates would be warranted if the US economy continues to strengthen.

"Several members judged that it would be appropriate to increase the target range for the federal funds rate relatively soon if economic developments unfolded .. as expected," according to the minutes from the Fed's September policy meeting.

Despite signs of a stronger appetite for a rate rise, the minutes also signal caution and division among members about the actual timing on a rates move.

"It was noted that a reasonable argument could be made either for an increase at this meeting or for waiting for some additional information on the labor market and inflation," the minutes say.
"A couple of members emphasized that a cautious approach to removing accommodation was warranted."

The minutes show that three voting members on the Fed's rate-setting committee dissented on the September policy in favor of an immediate hike when rates were left at between 0.25 and 0.5 percent.
There is concern that "without gradual increases in the target range" a tighter labour market could result in "a subsequent sharp tightening .. that could shorten the economic expansion."
There also appears to be jitters that inflation remains below the Fed's two percent target with voting members noting that "there were few signs of emerging inflationary pressures."
Wall Street stocks ended 0.1 percent higher after the Fed minutes were released despite initial analysis showing little new information in the Fed's rates thinking.
The US dollar was slightly higher on the continued speculation that the Fed will push the rates button in December.

The Federal Reserve board next meets on November 1 but a rate rise is seen unlikely a week out from the US presidential election.

Wednesday, October 12, 2016

ASIC launches crackdown on life insurance industry as CommInsure probe continues

The Australian Securities & Investments Commission has announced a major crackdown on the life insurance sector after identifying what it calls "significant shortcomings" in the way claims are handled.

Read the review here

While ASIC has not found evidence of system misconduct, it has revealed the highest level of rejected claims relate to total and disability and trauma.

ASIC's crackdown comes as it continues to investigate claims of unethical behaviour at the Commonwealth Bank's insurance arm, CommInsure.

Wednesday, October 5, 2016

FIRB boss Brian Wilson shelves controversial private equity role amid perceived conflicts

Foreign Investment Review Board chairman Brian Wilson has shelved controversial plans to take an advisory role with a global private equity company to avoid a perceived conflict of interests.

In a statement released this afternoon, Mr Wilson said he would suspend his proposed role with The Carlyle Group "to ensure there can be no question as to the integrity of Australia's foreign investment review system".

"Having noted concern in some quarters and to ensure appropriate due public confidence in the foreign investment review system, I have decided to take this extra measure." Mr Wilson said.

The appointment as a senior advisor with Carlyle's Asia buyout team was seen by some critics as a potential conflict given Mr Wilson's role in overseeing Australia's foreign investment interests particulary given a tense relationship with China.

Last month when the appointment was announced, a spokeman for TreasurerScott Morrison rejected claims of conflicts saying Mr Wilson would step aside from deliberations that could clash with the interests of FIRB.

At the time, the spokesman defended the appointment saying FIRB needed to attract people with deep experience of foreign investment and that there were "strong proceedures in place to manage conlicts".

Mr Wilson says he will delay the commencement of the Carlyle role until April 2017 when his chairman role at FIRB expires.

Mr Wilson said the Carlyle appointment had been originally approved on the basis that "normal proocols would deal readily with the very rare conflicts."

In line with the Treasurer's statement from last month, Mr Wilson repeated he would stand aside from any matter involving The Carlyle Group until his chairmanship expires.