Watch out! Super Jurassic Park is coming near you soon! This incredibly realistic film is about Super Dinosaurs emerging and thriving in a specialised regulatory and legal environment that was created by eccentric boffins, supposedly for the benefit and protection of individual humans (consumers), but which, in reality, is tailor-made for (some cynical palaeontologists would say “tailor-made by”..) the dinosaurs (commercially driven suppliers).
The boffins decided that humans and dinosaurs were actually the same, even though they may look, perform and behave differently. They decided it was unfair to have different rules for the two species because, as they are both in the business of survival, a level playing field should be created where they could engage in fair and competitive hand-to-hand combat. No weapons were allowed, but humans were allowed to choose which dinosaur to fight. This brilliant thinking was to give humans more choice, more competition in a liberalised environment, all of which in classic economic theory should engender enhanced quality of life and lower the costs of living.
The only problem was that the dinosaurs ate all the humans.
We are in danger of seeing this film become reality in our super environment. Without a sensible and reasonable legal and regulatory framework, the laudable intentions of choice and market competition actually threaten to destroy consumers’ market power and transfer this power to the suppliers. The warning signs are already here.
Huge numbers of corporate not-for-profit super funds and their individual members are being gobbled up by master trusts — driven into their clutches through ever-increasing compliance costs, enormously complex regulations, and overly onerous legal liabilities.
The suppliers kindly remove these problems. They typically offer a one-stop shop by bundling together all the services required to run a super fund. But it is difficult, complex and costly to get out of this bundle. It is also difficult to control this bundle. It is impossible to segregate the good from the bad in this bundle. The trustee of this bundle is the very same service supplier. There is no independent referee — that went when the corporate super fund trustee board was extinguished.
Consumers are trapped and are prisoners to the pricing structure of the supplier. The cry of “you can always fire us” is smarmy sales talk, and its actual practicability is doubtful. Mind you, each consumer can pick from a dazzling array of investment managers and investment options, but very few actually do. How they make a sensible prudent decision is also unknown and unanswered (even though it affects one of their most important assets). And, do the extra costs involved warrant the extra choice provided? Almost certainly not! Oh, by the way, why is it so difficult to get a clear and transparent declaration of all costs suffered?
Prior to bundling, consumers did have considerable market power. They did this by banding together, using their combined purchasing power to significantly influence the pricing structure. To protect their interests, they created an independent board, half elected by individual members, half appointed by the employer, all working not-for-profit, disinterested financially.
What a superb corporate governance structure, particularly against the backdrop of Enron, WorldCom, HIH and One.Tel. This board keeps a watchful eye on the suppliers, using the full force of open market competition to appoint the best of breed, minimise costs, optimise returns, reduce risk and acting like a referee to ensure that the profit-driven players play according to the rules, fairly and squarely.
How then are policy makers helping ‘consumers’ by encouraging the annihilation of these corporate governance structures and destroying the market power of consumers?
The good news is that gutsy, not-for-profit players will not lie down and be devoured by the dinosaurs — their survival lies in grouping together in a powerful effective tribe like the Corporate Super Association, which is growing strongly with more than $60 billion represented and with a view to use their combined power and combined influence wisely and effectively.
The other good news is that we have an excellent Senate Select Committee and a highly intelligent new Minister in Senator Helen Coonan who can stop the rot and ensure differentiation under law between the not-for-profit and for-profit providers.
Lastly, why refer to suppliers as dinosaurs? Because super palaeontologists will remind you that quasi-monopolistic financial services conglomerates existed around 1990, but they became extinct due to environmental change — the need for unbundled services, the rise of the specialist performer leading to improved performance, reduction in fees and control of service providers by the consumer. We must not cede market power to the suppliers. It is time to put the dinosaurs back in well-protected cages.
— Nic Brookes is CEO of the Corporate Super Association (CSA).
