Retail superannuation funds miss out on $50bn in growth because of poor management, high fees

Retail super funds - usually recommended by financial planners - have missed out on $50bn of investment growth in the past 12 years.

Reform needed ... a study shows retail super funds have missed out on $50bn in investment growth in the past 12 years.

'Backhander' funds cost super $50bn

IT is the most expensive financial scandal in Australia.

Retail super funds - usually recommended by financial planners because of their generous commissions - have missed out on $50 billion of investment growth in the past 12 years.

Research from Industry Super Network (ISN), the super trade body, has revealed that poor investment management, high fees and commissions paid to financial planners has reduced the investment returns on retail super funds by a staggering $20 billion in the past year alone.

The report, called Australia's Lost Savings, was written by ISN and reviewed by the University of Canberra using average super fund performance data going back to 1997.

ISN boss David Whitely is now calling on the Federal Government to reform the financial advice system so that finance planners are forced to act in their clients' best interests, and not promote products that pay the highest commissions.

"It is one of the great injustices of our time," Mr Whitely said. "The current system legitimises financial incentives to salesmen who have no legal obligation to act in our best interests."

Under existing regulations, planners have to give only advice that is "appropriate".

"That gives far too much leeway for planners and offers insufficient protection for investors," said Mr Whitely.

A 2007 report by a Parliamentary committee said that ". . . as long as disclosure requirements are met, it is legally permissible for an adviser to recommend a product privately knowing it is not the best option for the client".

Consumer group Choice has been campaigning for years against high commissions, particularly "trail" commissions, paid each year to financial planners whether they do any work to deserve it or not.

"The way the financial planning and funds management industries work together creates structural conflicts of interest," said a spokesman.

"The higher the commission paid, the more the financial planner makes. This creates incentives for financial planners to recommend products with higher commission payments, and isn't necessarily in best interests of the investor."

But Richard Gilbert, of the Investment and Financial Services Association, defended the commission system.

He said: "Our policy is there should be competition around commission and fee structures, and that disclosure be the paramount point. And in terms of fees on super funds, it is retail funds that have seen the biggest reductions."