Counsel assisting Michael Hodge, QC

As far back as 2011, ANZ Bank officials had identified an “extreme” risk in the bank using its retail distribution network to sell wealth products, of which superannuation funds are a part, the Hayne royal commission has heard.

If sales personnel did not ensure they gave only “scripted general advice” and followed the correct process that made a distinction between general and personal advice clear, “it is possible that regular breaches or incidents would be seen by the regulator as ‘systemic’, putting ANZ’s licence at risk”, stated an internal ANZ document that counsel assisting, Michael Hodge, tendered to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The document was marked as correspondence between the chief risk officer and the managing director of distribution.

The document proved prophetic in July this year when ANZ, together with the Commonwealth Bank, agreed to an enforceable undertaking to stop selling superannuation products together with “financial health checks” at bank branches. ASIC found the practice amounted to giving unauthorised personal advice.

Despite those early warnings seven years ago, the selling of these products in tandem had continued, with ANZ flouting warnings from the regulator for years. It sold its Smart Choice Super and Pension product as an inherent part of its “A to Z” financial health checks until it decoupled the two entities in 2016 – two years after ASIC started raising the issue, the commission heard.

ANZ branch sales staff would read a “delinking statement” to get around laws against giving personal advice.

It also emerged ASIC had become concerned the branch-sold Smart Choice was being marketed as a low-cost MySuper product, when it wasn’t necessarily a MySuper product.

Hodge said it was confusing, as there was more than one ANZ Smart Choice product and only one of them was a MySuper product.

They were managed with the same teams and “fundamentally…very similar”, with the same investments and the same fees, ANZ Wealth head of super Mark Pankhurst said.

The 2011 internal risk document said risk controls that included measures such as mystery shopping, compliance spot-checks and customer surveys, lowering the risk rating to ‘medium’.

Pankhurst said mystery shopping later identified problems with “a small number of customers”, where staff had not read the de-linking statement to them. The staff members responsible had been re-trained, he said.

Smart Choice had been developed specifically to be sold in ANZ branches, the commission heard. Roughly 47 per cent of customers opening an account had invested into Smart Choice Super, Pankhurst said, and the value of contributions or rollovers into the product between 2012 and 2016, from branch sales, was more than $2 billion.

Counting additional money that subsequently flowed in from those customers, the product generated a total of about $3.6 billion in funds under management.

Hodge questioned Pankhurst about whether the ordinary customer understood that the de-linking statement and other processes formed a “concrete wall” between the A to Z review and the selling of bank products.

“Do you agree that the key risk in relation to the sale of Smart Choice Super is that customers –will switch their superannuation without understanding the potential consequences and end up with a less-suitable product than their existing funds?” Hodge asked Pankhurst.

“No, I wouldn’t say with this product,” Pankhurst replied. “I think that is a general risk with all superannuation products – that customers make decisions without fully understanding exactly what they’re in.”

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