Australians’ superannuation cash is being pushed into low-returning savings accounts that help boost the profits of the big four banks, a Fairfax Media investigation has found.
Instead of diversifying and chasing the best returns in the highly competitive cash management market, big bank-owned fund managers are putting the cash into accounts operated by their big-bank parents.
Banks paying out a lower rate of interest on customers’ money reduce their cost of funding other operations and improve their profitability
The system is employed by some of Australia’s biggest superannuation companies, including BT, ANZ Cash Management, Colonial and MLC, which are directing cash to the accounts of their respective owners: Westpac, ANZ, Commonwealth and National Australia.
Superannuation customers are therefore being short-changed because they are receiving lower returns by investing only with their parent banks, rather than seeking the best returns in the market.
For example, the Commonwealth Bank-owned Colonial’s FirstChoice investment platform parks about $3.3 billion of investors’ cash in the Commonwealth Bank-owned FirstRate Saver account.
Its rate is now 2.4 per cent – well shy of the 3.3 per cent rate on a four-month term deposit with the Commonwealth Bank, or for that matter the 3.7 per cent rate on offer with National Australia-owned rival UBank to park money for three months.
Under Corporations Law, fund managers have an obligation to act in their customers’ best interests, which means pursuing the best and safest returns possible by shopping around in the bank bill and CD (certificate of deposit) markets.
Although most banks are clustered around the 2.4 per cent return mark for their cash fund customers, ME Bank is touting 3.5 per cent for just one month, and RaboDirect is at 3.35 per cent.
Banks paying out a lower rate of interest on customers’ money reduce their cost of funding other operations and improve their profitability.
One wealthy client of MLC said he noticed the manager had allocated a few hundred thousand dollars of his investment to the MLC Cash Fund earlier this year, owing to the volatility of the sharemarket, and found it was returning 2.5 per
cent. ”On reviewing the performance of this fund, I was surprised to find that it was so low,” he said. ”This is miserably low even in today’s interest rate environment, where three- to 12-month term rates are still available around the 3.5 per cent to 4 per cent mark, and my online deposit with NAB is currently paying 4 per cent,” he said.
Bank spokespeople said all appropriate disclosures had been made in the fund documents.
Non-bank players in the cash market typically shop around, diversifying their customers’ cash between the banks, chasing the best rates in their members’ interests.
Spokespeople for all four wealth managers confirmed the cash management funds were routed to the parent banks.
”Westpac and St George (Westpac-owned) is where the cash is held and it’s a mix of deposit and bank bills,” BT spokesman Coran Lill confirmed. CBA spokeswoman Tracey Hicks said all the appropriate governance and oversight systems were in place.