By Real Economist
Taking your business elsewhere is the very core of the consumers’ power and the key driver of competition in the market.
But competition in the real world is not always in place. For a start most of our purchases are for services not products. How do you specify the quality of a service in advance of receiving it and how do you know when you got good service? Not that hard to tell whether you got a good hair cut or not but pretty hard to tell whether you have a good insurance policy in advance of trying to make a claim – the point at which you need the policy and maybe years after you started your relationship with your insurer. Your Real Economist recently suffered the pitiless indifference of an insurance company.
In fact, this is generally true of financial services. Too often you just don’t know what you are buying.
Superannuation is a great example. By the way you probably spend around $2000 per annum on buying superannuation services. So pay attention!
For a start, a majority of the customers in the market have no interest in the service. It offers no value at all to them. In fact they would much rather have that money in their hands now. The only reason they even have superannuation is because the Government forces them to buy it. For those wanting to buy a house and with no thought of retirement, give me the money now so I can buy my house and avoid paying rent! By the way – the best return you will get on any investment.
For young people under 35, and yes your Real Economist is showing his age, for whom retirement is simply not even a thought, not having income and wealth tied up in superannuation is completely rational behavior.
Put up your hand if you are under 35 and know exactly how much you have in super, what the return on the funds invested was last quarter and how much you paid in fees? You don’t care I hear you say. And so half the market is never going to take their business elsewhere. No competition because you (rightly) don’t care.
If you are over 35 put up your hand if you know the performance of your advisor across all of their clients last quarter. Where do I get that information I hear you say? Well you can’t because no financial advisor needs to demonstrate the quality of their advice by reference to their performance. They simply rely on that piece of paper from the Government called a license.
Also if you are over 35 put up your hand if you moved all your superannuation to a new fund because of the relatively poor performance of your existing fund. Nobody – because they just make it too hard to compare like for like and move your money.
Compulsory superannuation is Government telling you what to value. They call it and made it compulsory for a reason. You don’t want it! Unfortunately, the only thing they care about is not having to put taxes up to pay you a pension when you earn it in 30 years. They don’t care or are perhaps too stupid to understand that they have created this enormous mountain of wealth and the industry that manages it is insulated from competition – the core driver of good behavior by service providers.
It’s a perfect, fertile environment for thieves and charlatans.