Retail funds take most heat in searing closing comments
| 27 August 2018
Industry superannuation funds have been largely let off the hook in counsel assisting’s detailed closing submission to the Hayne royal commission, which stated that retail funds operated by NAB, Commonwealth Bank, AMP, IOOF, Suncorp and ANZ Bank could be found to have contravened corporation and superannuation laws.
The closing submission – which wrapped up the superannuation industry round of the inquiry – found no breaches of the law by industry super funds, but hospitality-industry fund Hostplus might have fallen below community standards in its retention strategies, which sought to keep low-balance and inactive accounts in the fund, boosting revenue from insurance premiums.
The submission also criticised Catholic Super for failing to prevent the emergence of conflicts of interest and poor monitoring of corporate credit-card use and questioned whether AustralianSuper’s 2017 “Fox and Henhouse” advertising campaign served the best interests of its members.
Hostplus, which at August 2018 had about $34.5 billion in funds under management and just over 1.1 million members, was singled out for its almost 470,000 members with a balance of $6000 or less at June 30, 2017 – just under half of its total membership. It also had just under 300,000 accounts deemed inactive.
Under questioning at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Hostplus chief executive David Elia had agreed that inactive and low-balance members were less likely to be engaged with their superannuation.
Counsel assisting stated in the closing submission that Hostplus “may be engaging in activities to retain inactive members with low balances, which are not in the best interests of those members, and in circumstances where it was in Hostplus’s interests to keep inactive members in the fund for the purposes of revenue raising”. The submission also questioned whether Hostplus’s use of members’ funds for corporate hospitality and as rewards for staff was in the best interests of members.
Catholic Super drew some heat during questioning for the collapse of its merger talks with Sydney Catholic Super but this did not amount to misconduct or conduct falling short of community standards, the closing submission stated. Catholic Super might have breached prudential standards, however, by failing to have a conflicts management framework in place to prevent the emergence of conflicts of interest, as evidenced by its dealings with a company named Australian Family, the submission stated.
The Catholic Super board paid Australian Family more than $2 million for marketing, consulting and other expenses; the managing director of Australian Family, Paul Clancy, is the brother of Catholic Super’s head of institutional relations, Robert Clancy.
Catholic Super’s insufficient monitoring of corporate credit card use also fell below community standards and expectations, the closing submission stated.
The failed merger between Energy Super and Equip Super also did not fall short of community standards and expectations Hodge said.
AustralianSuper’s 2017 “Fox and Henhouse” advertising campaign – which questioned the appropriateness of banks offering superannuation products – was not misconduct and did not fall short of community expectations, counsel assisting found. But this campaign raised questions about whether political advertising was consistent with the intent behind the Superannuation Industry (Supervision) Act, known as the SIS Act, and what benefit consumers stood to gain from the advertising.
The closing submission was more harsh in its criticism of NAB, Commonwealth Bank, AMP, IOOF, Suncorp and ANZ, which could be found to have contravened the Corporations Act and the SIS Act, the closing submission stated. Some of the potential breaches carry criminal penalties.
A large amount of the submission was directed at NULIS Nominees – the registrable superannuation entity licensee for NAB’s MLC Super Fund and MLC Superannuation Fund. With $76.4 billion and $18.7 billion in funds under management, respectively, these funds represent more than 1.3 million members.
The charging of plan service fees and adviser service fees where no service was provided might have amounted to misconduct, the submission stated, potentially breaching the Corporations Act, the SIS Act and the ASIC Act. This could also be found to be conduct that fell below community standards and expectations.
“By advocating various methodologies in their negotiations with ASIC, including opt-in remediation or ‘fair value’ approach, with the intention or effect of minimising the quantum of remediation to be paid to members, NAB and NULIS acted in a way that was ethically unsound and ultimately delayed remediation to members who, in some instances, had paid fees in 2009,” counsel assisting stated.
NAB was also not “full and frank” with the regulator about the amount of loss to members and the expected remediation, the submission asserted. Chief customer officer, consumer and wealth, Andrew Hagger revealed “both a disrespect for the role of the regulator and a disregard for the gravity of the events in question” when he gave evidence that he “left the door open” for ASIC to ask questions, the submission states.
NAB may also have breached the SIS Act’s requirement that it act in the best interests of members, when it resolved to retain grandfathered commissions for members transferred to the MLC Super Fund in July 2016, and by delaying the transition of members to MySuper offerings so that they continued to pay grandfathered commissions, plan service fees and contribution fees, counsel assisting wrote.
An NAB spokesperson said the bank disagreed with many of the findings and would address them in a further submission by August 31.
“We take our obligations to uphold the law seriously,” the spokesperson said. “Where we get it wrong, we expect to be held accountable. We are also focused on earning the trust and respect of or customers every day, and when we do not live up to their expectations we will make it right.”
Commonwealth Bank’s inability to move more than 13,000 super fund members to MySuper accounts after January 1, 2014, could be found to be a breach of corporation and superannuation laws, the closing submission continued. And CBA’s open platform, Aventeos, was in breach of the super laws in charging dead customers for financial advice, the submission stated.
IOOF might have breached super laws in raiding its reserves to compensate members for a management blunder and engaged in misleading or deceptive conduct in its subsequent communications to members, counsel assisting stated.
IOOF managing director Chris Kelaher was criticised for lacking insight into both the obligations super fund trustees have to their members and why IOOF’s conduct was problematic.
AMP’s highly outsourced arrangement, in which other arms of the business managed a range of services for the trustee, left the AMP trustee unable to step in and protect its members from fee gouging by various related parties.
Parties with leave to appear now have until August 31 to provide written submissions in response to the specific findings that are the subject of the closing submissions.
The closing comments also raised a range of policy-related issues. The broader public has until September 21 to make submissions related to these.