18/02/2003 - 21:00

Editorial - Strange return

18/02/2003 - 21:00


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WHAT a strange place Australia is.

WHAT a strange place Australia is.

If Mr and Mrs Citizen from the ’burbs win $33 million for nothing more than buying a lottery ticket they are hailed as Aussie-battlers made good, even if the chances are they will blow large chunks of their unearned good fortune on useless sports cars they had done without until then.

They won’t even pay any tax on it.

But if you make a shed-load building up a funds management operation watch out, because you run the risk of having your rewards retrospectively removed in a fit of politically-driven jealousy.

Let’s be clear, the furore over Chris Cuffe’s $33 million payout on his departure from ComBank

is not about the money he received. 

It’s all about the business he is in and his connection with a public unlisted company.

Firstly, few would deny executive salaries are on the nose.

A whole bunch of bad CEOs have quit high-profile positions with massive golden handshakes and, quite rightly, everyone is asking where the value is?

Like Tony Abbott said last week, this is up to the shareholders.

If they don’t like such payouts they should tell the boards to stop agreeing to them and, perhaps, demand that the details of executive contracts be made public.

If that means companies that take such positions can’t get decent executives, so be it. You can’t have your cake and eat it.

Anyway, arguably Mr Cuffe was being rewarded for growing the business he ran, not being pushed out of his contract early because he was doing a bad job.

So that brings us to the second issue: the superannuation business.

Mr Cuffe is unfortunate (from the publicity side of things) enough to make a mint out of funds management, a business that has thrived on the back of the growth in superannuation.

While he is being rewarded for achieving growth targets over several years, the timing of his payout coincides with dreadful performances in world equity markets that have caused funds under management, and therefore personal super funds, to be hammered.

That is hardly his fault.

In fact, the truth is that equities do this.

We’ve all been told this time and time again.

But there is a deeper issue, for which Mr Cuffe appears to be paying the price.

Those connected with superannuation have become rich not necessarily because they have excelled at their work – fund managers have shown years of good results in easy markets, this has been the first real test for some time – but because their business has been fuelled by regulated growth.

Successive Federal Governments have ensured the success of this business by legislating that ever-increasing proportions of our ever-increasing salaries goes towards our retirement savings – whether we like it or not.

While this might seem like good policy, forcing you and I to commit some of our income in an inflexible way has given a very big free kick to financial advisers, fund managers and others in this business.

Like the tide, it flows in no matter how average their performance.

Even raking off considerable fees that are often hidden or hard to calculate rarely discourages investors from remaining committed.

Naturally, the investing public gets pretty angry when someone gets rich off their compulsory savings, particularly when those very same savings went backwards.

The Government is right to say that executive salaries are the realm of shareholders and boards but it can’t buck pass on the cream being skimmed off savings that it has forced us to make through legislation.

We have already seen news of the poor performance of some financial advisers, and everyone knows how badly fund managers have done recently.

The big concern is just how much the fees being taken off investors will affect them in the longer term. Just as we know the value of compounding, there is a similar negative effect for every few per cent that is removed from our investments in largely undisclosed fees.

Add to that the poor standard of financial planning advice, which is often a euphemism for high commission sales, and the increasingly questionable role that stock market analysts have played in the investment decision-making process, and you have to seriously question the value of superannuation – let alone the tax deduction that goes with it.

That is why $33 million is an issue and something the Government should look carefully at.

There is growing evidence that our financial services sector is failing average investors – the very ones who will most need their savings in the longer term.

If this industry is going to get a regulated steroid injection from everyone’s pay packet it will have to pay the price with some real regulation of itself.

Right. I’m off to buy a Lotto ticket.


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