Way back in 1992 it was decided that every working Australian should be forced to contribute to retirement funds for their own good. Compulsory superannuation was born and has matured into a giant savings system worth $1.2 TRILLION, a sum its architects love to champion as a triumph of public policy ingenuity.
However, the government would surely have to think twice before creating another compulsory system that allowed commercial interests to profit without restriction from the vast pool of savings that would be up for graps. Compulsory super created a whole new professional middle class of investment funds managers and so-called financial planners (who in the main are commissioned salesmen), while at the same time providing a whole new income stream for those in the accounting and legal professions.
Seemingly overnight, thousands of salesmen, who had previously sold everything from encyclopaedias to second-hand cars, became financial planners in the headlong rush to service this exploding market. In some cases it seemed that their only qualification consisted of having passed the mirror test - meaning, they had a mirror stuck under their noses to see if it would fog up. If it did, they were hired; if it didn't, it meant they were dead, which was the only reason why they weren't hired.
So how many financial planners/advisers are out there? Not the ASIC nor the FAA nor the FPA know (how is that for a regulated and supervised industry?) but some suggest 30,000, others mention 18,000 but here's the clincher: only 14 - YES, FOURTEEN! - are truly independent and offer truly independent advice! - see Trish Power's excellent article. Being such a rare breed, their names are worth mentioning here:
Phillip Thompson, ACT
Daniel Brammall, ACT
Fergus Hardingham, NSW
Chris Browne, NSW
Kevin Smith, NSW
Bill Raffle, NSW
Carolyn Baker, QLD
Richard Starr, QLD
Tony Grlj, QLD
Neil Salkow, QLD
Matthew Ross, VIC
Yoni Stein, VIC
Adrian McMaster, VIC
Travis Morien, WA
The rest are all pushing somebody else's barrow and sell you what earns them the highest commissions (and trailing commissions which are paid to them from hereon ever after, AMEN) rather than what is the best investment for you!
Fund managers' fees are typically percentages that are inevitably geared to total funds under management or advice, not returns to the investor. When annual fees are levied at even an average 1 per cent across financial services, the income stream approaches a staggering $30 BILLION. Today, most funds are charging 2 per cent (and often more!) which, if you factor in only a 5 per cent return after tax (reflecting recent lower performance), gobbles up a staggering 40 per cent of an investor's returns.
This whole new class of rentiers now sit back and live off the dividends of a growing asset they are not themselves growing as they all get a free kick from the market (and charge their investors extra "performance fees") when it goes up and claim it isn't their fault when it goes down. Why should clients pay for this, especially as they are the only ones who bear all the risks?
In another time, tontines used to be a popular form of super. They would pool cash from investors and, as some of them died, all the other members of the pool would get a larger share of the annual income. They became illegal when members began to search out other investors and kill them to increase their own income.
Has anything really changed?
P.S. Here is my advice - which is free, abundant and probably totally useless - to you: cut out the middlemen, cut out the commissions, start your own Self-Managed Superannuation Fund (SMSF). It's not rocket science! Here is a self-education tool to get you started.
